Regression theorem & Bitcoin revisited

[hazek]

This is a discussion I had on another forum:

Him:

Bitcoin violates the regression theorem. Bitcoin is purely synthetic, it was never tied to any consumer good, nor was it derived from any other currency that was tied to a consumer good.

Me:

You are misinformed. I think it's best you read http://wiki.mises.org/wiki/Regression_theorem yourself cause it seems like you don't understand what it means.

Him:

Nope.

Why are people willing to accept money as payment for goods today: i.e. why does it have purchasing power? Because those people expect it will have purchasing power tomorrow, and this expectation is grounded in their knowledge that money had purchasing power yesterday. So why did it have purchasing power yesterday...and so we begin the regress. But it's not an infinite regress, it concludes when the answer to the question "why does money have purchasing power today" is "because this 'money' is a consumer good, something valued in its own right."

But, as I said, bitcoin is not a consumer good, nor does it have any connection (present or historical) to any consumer good.

Me:

Ok seems like you get the regression theorem but you are misapplying it to Bitcoin.

I don't know if you know this but back in early 2010 when 1 bitcoin was theoretically valued a fraction of a fraction of a cent (this was just an approximation of how much it cost to produce it, no actual trades happened that would set this price) something strange happened. Some guy decided to put up a forum ad asking to exchange 10.000 BTC for 2 pizzas. And then something "stupid" happened, someone said yes and they carried out this transaction.

But what exactly did happen there? There was this guy with two perfectly good pizzas and he decided to exchange them for 10000 bitcoins?! Now why would he do that if not because he personally saw "something valuable in their own right" in them? And I argue that's exactly what he saw back then. To him bitcoins were a digital token, digital jewellery like gold earrings.

And then something even more stupid happened, there were more and more people who showed up wanted to "wear" this digital "jewellery". Now why is that, why would all these people show up and want to own these tokens worth practically nothing?? Was it just because it was a novelty? Was it because they were speculating they might get filthy rich one day if Bitcoin happened to catch on. Remember there was no trading back then and the currency was used by so few in effect it was dead so any expectation of a higher exchange rate were a lot less likely than merely a long shot.

But it doesn't matter why more and more people showed up wanting to hold them and exchange something of value for them. The important fact is they did and this is what drew the initial demand. Bitcoins, to them, for what ever reason were valuable in their own right.

And voila, regression theorem satisfied.

Did I get any of the facts wrong? Is my reasoning flawed?

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[mcgravier]

Saying that Bitcoin cant work, because it does not fulfill regression theorm is like saying that vaccines cant work because they are not the result of natural evolution. The thing is that humans are beings of intelligence and reason - we are not bound to one natural path of evoution, we can push it forward, go right, left... or sometimes backward. Reality will validate our choice, the same way market will validate existance of bitcoin.

[xxjs]

Maybe at the time the regression therem was worked out, there had only been examples of paper money developing from commodity money.

Maybe when the population of the world had seen paper money working, it was possible to start a new money system without intrinsic value, but not before that time.

Wasn't the Deutche Mark restarted after the crash without intrinsic value?

It is possible that bitcoins have a miniscule intrinsic value, especially in the beginning when this was something new and could be used to brag. If it hasn't, it seems to be possible to create some by making noise on the internet.

[xxjs]

Conclusion: The regression theorem is useful in explaining todays prices, or the value of money: It is based on yesterdays value.

But regressing all the way back to the start of the money system: Either there has to be intrinsic value to the money, or not. No conclusion.

[xcsler]

Internet classroom circa 2075 (USD/BTC exchange rate = infinity):
'Lil Jimmy (via Skype): Mrs. Paul, why are bitcoins money?
Mrs. Paul: Excellent question Jimmy! When I was your age the only real money we had was gold!
Gold was money because of its intrinsic characteristics of scarcity, fungibility, divisibility, portability and durability.
Over the course of time, the free market recognized that these were the characteristics that made for the best money.
Then in the year 2009 a new commodity was discovered by the great Satoshi. An element known as the "Bitcoin Protocol". This element had all the same characteristics as gold except that it was electronic and not tangible much like your Facebook friends. In fact, it was even better than gold in some respects. I mean can you imagine paying someone with gold on the internet? Or carrying around little bags of gold in your pockets to pay for a pizza? (class laughs). The funny thing is that initially most of the people couldn't even recognize that Satoshi had discovered a new type of money. In fact, just like gold, it took years before people really started using bitcoins as money! Can you imagine that Jimmy? I know it seems crazy but that's how it all happened.
'Lil Jimmy: Mrs. Paul?
Mrs. Paul: Yes Jimmy.
'Lil Jimmy: What the @#$% is fungibility?
Mrs. Paul: Oh Jimmy!

[xxjs]

Funny story, but this part

Gold was money because of its intrinsic characteristics of scarcity, fungibility, divisibility, portability and durability.

Intrinsic value is the value apart from its moneyness: Nice to look at, electric conductivity, can make really thin sheets.

[MJGrae]

Did I get any of the facts wrong? Is my reasoning flawed?

I don't see any facts that are wrong. In fact if he really wants to argue the idea that there is supposedly nothing backing bitcoins, you can pull the Ace and say that the original value of a bitcoin was equal to the electricity (electrons, copper wire degraded, silicon & chipsets depreciation) that went into the creation of it. On top of that, because of those qualities and the fact that they were packaged into a nice little electronic token gave a slight buffer not to the intrinsic value but to the perceived value which, again, can be traced back to what the perceived value of other commodity currencies were at their own times.

I think you're spot on.

[xxjs]

Did I get any of the facts wrong? Is my reasoning flawed?

I don't see any facts that are wrong. In fact if he really wants to argue the idea that there is supposedly nothing backing bitcoins, you can pull the Ace and say that the original value of a bitcoin was equal to the electricity (electrons, copper wire degraded, silicon & chipsets depreciation) that went into the creation of it. On top of that, because of those qualities and the fact that they were packaged into a nice little electronic token gave a slight buffer not to the intrinsic value but to the perceived value which, again, can be traced back to what the perceived value of other commodity currencies were at their own times.

I think you're spot on.

The electricity that went into creating the block could not be intrinsic value of bitcoins - because you can not take the electricity out again.

[MJGrae]

Did I get any of the facts wrong? Is my reasoning flawed?

I don't see any facts that are wrong. In fact if he really wants to argue the idea that there is supposedly nothing backing bitcoins, you can pull the Ace and say that the original value of a bitcoin was equal to the electricity (electrons, copper wire degraded, silicon & chipsets depreciation) that went into the creation of it. On top of that, because of those qualities and the fact that they were packaged into a nice little electronic token gave a slight buffer not to the intrinsic value but to the perceived value which, again, can be traced back to what the perceived value of other commodity currencies were at their own times.

I think you're spot on.

The electricity that went into creating the block could not be intrinsic value of bitcoins - because you can not take the electricity out again.

But couldn't you say that the resources were exhausted and therefore the remnant of them is the coin? I'm not referring in this case to an exchange, but that the bitcoin itself is an extension of the very things it consumed in being created.

Though I suppose on second thought that isn't a very good parallel, since we do not think of dollars as having any value for the paper they are printed on (though we theoretically could).

[FreeMoney]

Did I get any of the facts wrong? Is my reasoning flawed?

I don't see any facts that are wrong. In fact if he really wants to argue the idea that there is supposedly nothing backing bitcoins, you can pull the Ace and say that the original value of a bitcoin was equal to the electricity (electrons, copper wire degraded, silicon & chipsets depreciation) that went into the creation of it. On top of that, because of those qualities and the fact that they were packaged into a nice little electronic token gave a slight buffer not to the intrinsic value but to the perceived value which, again, can be traced back to what the perceived value of other commodity currencies were at their own times.

I think you're spot on.

The cost to make something does not give it value.

My idea of bitcoin and the regression theorem is that maybe it applies maybe it's too much of a stretch, but it doesn't matter. Like the vaccine/evolution comment implies, just because there is a known route to something doesn't mean everything needs to take that route in order to work.

[FreeMoney]

Did I get any of the facts wrong? Is my reasoning flawed?

I don't see any facts that are wrong. In fact if he really wants to argue the idea that there is supposedly nothing backing bitcoins, you can pull the Ace and say that the original value of a bitcoin was equal to the electricity (electrons, copper wire degraded, silicon & chipsets depreciation) that went into the creation of it. On top of that, because of those qualities and the fact that they were packaged into a nice little electronic token gave a slight buffer not to the intrinsic value but to the perceived value which, again, can be traced back to what the perceived value of other commodity currencies were at their own times.

I think you're spot on.

The electricity that went into creating the block could not be intrinsic value of bitcoins - because you can not take the electricity out again.

But couldn't you say that the resources were exhausted and therefore the remnant of them is the coin? I'm not referring in this case to an exchange, but that the bitcoin itself is an extension of the very things it consumed in being created.

Though I suppose on second thought that isn't a very good parallel, since we do not think of dollars as having any value for the paper they are printed on (though we theoretically could).

Consider the value of the ashes of beautiful furniture.

[MJGrae]

The cost to make something does not give it value.

My idea of bitcoin and the regression theorem is that maybe it applies maybe it's too much of a stretch, but it doesn't matter. Like the vaccine/evolution comment implies, just because there is a known route to something doesn't mean everything needs to take that route in order to work.
[/quote]

Oh I know and I agree with you. I was just trying, and failing, at playing devil's advocate. Next time, Gadget.. Next time.

[Grant]

Did I get any of the facts wrong? Is my reasoning flawed?

I think your reasoning was very solid.

But i'd probably shoot straight at the core of monetary utility.

Gold has zero internet utility (even with the best compression methods it cannot be transfered over IP). While "cryptography+communication" does, so much that without it we couldn't have the kind of internet we have, and that's what gives bitcoin a physical backing.

Which seems to have been his final argument (which btw is invalid, something becomes money once 1 or more people accept it as valuable):

That is, even if it does have value as a consumer good to some people, it's not enough people for it become money.

[kjj]

Regression is useful when you are trying to understand how we got from barter with useful objects to where we are today.

Now that we are here, it hardly seems necessary to theorize on why we would want to switch from less useful monopoly money to more useful monopoly money.

[Walter Rothbard]

This is a discussion I had on another forum:

Him:

Bitcoin violates the regression theorem. Bitcoin is purely synthetic, it was never tied to any consumer good, nor was it derived from any other currency that was tied to a consumer good.

Me:

You are misinformed. I think it's best you read http://wiki.mises.org/wiki/Regression_theorem yourself cause it seems like you don't understand what it means.

Him:

Nope.

Why are people willing to accept money as payment for goods today: i.e. why does it have purchasing power? Because those people expect it will have purchasing power tomorrow, and this expectation is grounded in their knowledge that money had purchasing power yesterday. So why did it have purchasing power yesterday...and so we begin the regress. But it's not an infinite regress, it concludes when the answer to the question "why does money have purchasing power today" is "because this 'money' is a consumer good, something valued in its own right."

But, as I said, bitcoin is not a consumer good, nor does it have any connection (present or historical) to any consumer good.

Me:

Ok seems like you get the regression theorem but you are misapplying it to Bitcoin.

I don't know if you know this but back in early 2010 when 1 bitcoin was theoretically valued a fraction of a fraction of a cent (this was just an approximation of how much it cost to produce it, no actual trades happened that would set this price) something strange happened. Some guy decided to put up a forum ad asking to exchange 10.000 BTC for 2 pizzas. And then something "stupid" happened, someone said yes and they carried out this transaction.

But what exactly did happen there? There was this guy with two perfectly good pizzas and he decided to exchange them for 10000 bitcoins?! Now why would he do that if not because he personally saw "something valuable in their own right" in them? And I argue that's exactly what he saw back then. To him bitcoins were a digital token, digital jewellery like gold earrings.

And then something even more stupid happened, there were more and more people who showed up wanted to "wear" this digital "jewellery". Now why is that, why would all these people show up and want to own these tokens worth practically nothing?? Was it just because it was a novelty? Was it because they were speculating they might get filthy rich one day if Bitcoin happened to catch on. Remember there was no trading back then and the currency was used by so few in effect it was dead so any expectation of a higher exchange rate were a lot less likely than merely a long shot.

But it doesn't matter why more and more people showed up wanting to hold them and exchange something of value for them. The important fact is they did and this is what drew the initial demand. Bitcoins, to them, for what ever reason were valuable in their own right.

And voila, regression theorem satisfied.

Did I get any of the facts wrong? Is my reasoning flawed?

Thank you for this explanation.  I think your reasoning is correct, and this is a good way to explain it.

I would also argue that prior to being exchanged for goods and other currencies, bitcoins were valued for interest sake alone.  I know that when I first started investigating bitcoin, I was concerned that they didn't appear to have a prior value on the market, until I realized that I was so interested in them I was interested in purchasing them merely to try them out.  That proved they had value as entertainment, education, etc.  I'm not sure if that's materially different from your "jewelry" analogy.

Today it's clear bitcoins have value in a number of cases, international currency transactions being one prime example.  Now that they do have value, they satisfy the regression theorem.

[asdf]

There is no such thing as "intrinsic" value. Value is subjective, no debate.

Bitcoin is valued as a medium of exchange. You can't make zero fee online transactions that aren't tied to your real-life identity with any other exchange medium. This has value!

I think the regression theorem doesn't account for the fact that the "initial demand" of a currency can indeed be as a currency. People need to trade and trade is more efficient with a medium of exchange. The market values currency itself as currency.

[sgbett]

Commodities have certain properties. They are physical tangible good that cannot be replicated. They have some value to people (some say intrinsic value, i agree with the previous poster that says no such thing as intrinsic value - without a person to assign value, then something has no value!).They can be created, discovered or brought into existence in some way, and they can be destroyed, lost etc mostly the commodity exists in a quantifiable way and the quantity of a commodity is subject to the physical laws of nature. Gold must be mined, oil must be drilled etc

Bitcoin satisfies the conditions of a commodity, save one - it is not a physical tangible good. It's virtual existence though is governed by probability, its very unlikely that any virtual bitcoin can be 'duplicated', the so called double spend. Unless the encryption scheme is broken somehow. As it stands the probability of this is low enough that we accept that bitcoins cannot be replicated.

I think then, the value of bitcoin is that it is a scarce commodity. A commodity that does not require physical storage space, requires negligible effort to trade (think in terms of energy to ship from A to B). A commodity that can be traded almost anonymously, almost instantly, internationally, and in spite of governmental trade restrictions. No other tangible, traceable, valuable commodity can come close to bitcoin in this respect. I think that gives it enormous value. It's value is mitigated by risks. The risk it will be broken, the risk it will be criminalised etc

Bitcoins have value because they are a commodity not a currency. They have value in spite of the USD exchange rate, and not because of it. Thats how I see it!

[xcsler]

Good stuff sgbett!

[MJGrae]

Commodities have certain properties. They are physical tangible good that cannot be replicated. They have some value to people (some say intrinsic value, i agree with the previous poster that says no such thing as intrinsic value - without a person to assign value, then something has no value!).They can be created, discovered or brought into existence in some way, and they can be destroyed, lost etc mostly the commodity exists in a quantifiable way and the quantity of a commodity is subject to the physical laws of nature. Gold must be mined, oil must be drilled etc

Bitcoin satisfies the conditions of a commodity, save one - it is not a physical tangible good. It's virtual existence though is governed by probability, its very unlikely that any virtual bitcoin can be 'duplicated', the so called double spend. Unless the encryption scheme is broken somehow. As it stands the probability of this is low enough that we accept that bitcoins cannot be replicated.

I think then, the value of bitcoin is that it is a scarce commodity. A commodity that does not require physical storage space, requires negligible effort to trade (think in terms of energy to ship from A to B). A commodity that can be traded almost anonymously, almost instantly, internationally, and in spite of governmental trade restrictions. No other tangible, traceable, valuable commodity can come close to bitcoin in this respect. I think that gives it enormous value. It's value is mitigated by risks. The risk it will be broken, the risk it will be criminalised etc

Bitcoins have value because they are a commodity not a currency. They have value in spite of the USD exchange rate, and not because of it. Thats how I see it!

This is actually basically what I've been saying in a couple of other threads. I view bitcoins more as a commodity than a typical modern day currency, but since they are currently in the process of being used more and more for trade, they are moving into the commodity currency territory, as far as I'm concerned. Gold did the same thing, way back when.

[phatsphere]

The cost to make something does not give it value.

I haven't read all the stuff here, but just about that: I would argue, that in the case of gold, bitcoin & co, it boils down to reduction of entropy. for gold, you have to find and combine all the tiny bits (atoms) to bigger chunks. That reduces the scattering, i.e. entropy. this needs energy! bitcoin: the low hash value is one of the purest forms of entropy reduction you can get. also needs energy.

so, only the cost of making something doesn't count, but it counts if its goal is to make something "special" or "unique".

[hazek]

The cost to make something does not give it value.

I haven't read all the stuff here, but just about that: I would argue, that in the case of gold, bitcoin & co, it boils down to reduction of entropy. for gold, you have to find and combine all the tiny bits (atoms) to bigger chunks. That reduces the scattering, i.e. entropy. this needs energy! bitcoin: the low hash value is one of the purest forms of entropy reduction you can get. also needs energy.

so, only the cost of making something doesn't count, but it counts if its goal is to make something "special" or "unique".

Actually this is a really good point. Gold that is still in the ground isn't worth anything. It's only when it's dug up that it gets it's value because now someone put effort into transforming that lump of rock into something more pure and more beautifully shaped that the person who dug it up and other people now value. And this is as true today as it was back when the only use gold saw was as jewellery  (imagine some guy finding a pretty rock and coming home and giving as a present to his wife saying "look what I found, isn't it pretty..).

The same could be argued about the calculated hashes.. By themselves they are meaningless and worthless but it's because someone did the calculations and found those numbers and gathered them into a blockchain that they were valuable to them and then to others.

[Adrian-x]

But, as I said, bitcoin is not a consumer good, nor does it have any connection (present or historical) to any consumer good.

This quote from the OP's original post is the key, when reviewing the regression thrum in reverse from its origin through time; you see the only real money is a commodity that has a measurable benefit (something like wheat / corn) and all other money is a derivative of that.

The transition from a corn to gold was most likely a market driven transition. Arguably the food commodity money transitions to a token system like gold was a messy process and took generations. That jump is very similar to the transition from Fiat to Bitcoin crypto currency.

A side note: the original lure of gold was most likely it reflected excess recourses in a community, and as a result gave one a symbol for "food prosperity" hence its desirability and people willing to pay in life sustaining recourses to attain it.  (bitcoin's  comparison to digital Jewellery is appropriate in my opinion)

In support of the regression thrum, Adam Smith gives us insight as to how the value of mined metals were derived, during this transition, effectively you needed excess production in corn to invest in feeding the miners  and the metal was valued higher than its production cost, market forces them sculpted human action in relation to how corn was invested.

Bitcoin fits this model to a tee,  people originally exchanged it for near to the production cost, then for pricing determined by the market, all the while the transition is analogues to that of a food commodity being exchanged for a metal like silver of gold, (just at the speed of fibrotic light).

That said, Miesis understood the issue of money inflation more than anyone and his regression thrum addresses this issue but doesn't emphasise it enough, over 98 % of money to day is just money by association, and its only connection to money is it was printed in the same name as the money before it.

Leaving the argument with Bitcoin and regression thrum a little moot, the real problem is Fiat, not lining Bitcoin to the regression chain to prove its validity.

[Longmarch]

This never seems to come up in these regression theorem discussions:

https://en.bitcoin.it/wiki/Proof_of_work

The most widely known and used proof-of-work is the hashcash cost-function which is used by Bitcoin, and also some anti-spam systems and as an anti-DoS mechanism in a number of other protocols. In the context of anti-spam, a proof of work on the recipients address can be attached to the email in an email header. Legitimate senders will be able to do the work to generate the proof easily (not much work is required for a single email), but mass spam emailers will have difficulty generating the required proofs (which would require huge computational resources).

So, the proof-of-work token is originally valuable because it lets you send email, and because it is also divisible fungible and countable it inevitably gets used as money. 

[xxjs]

This never seems to come up in these regression theorem discussions:

https://en.bitcoin.it/wiki/Proof_of_work

The most widely known and used proof-of-work is the hashcash cost-function which is used by Bitcoin, and also some anti-spam systems and as an anti-DoS mechanism in a number of other protocols. In the context of anti-spam, a proof of work on the recipients address can be attached to the email in an email header. Legitimate senders will be able to do the work to generate the proof easily (not much work is required for a single email), but mass spam emailers will have difficulty generating the required proofs (which would require huge computational resources).

So, the proof-of-work token is originally valuable because it lets you send email, and because it is also divisible fungible and countable it inevitably gets used as money. 

That was a long shot. Do you really need there to be intrinsic value in bitcoins?

[Longmarch]

That was a long shot. Do you really need there to be intrinsic value in bitcoins?

If bitcoin is to fit the regression theorem, then yes bitcoin would need to have an intrinsic, or more accurately, a barterable value.

This discussion isn't really about bitcoin, though, is it?  Bitcoin clearly has a value and clearly has utility as a money.  This discussion, I think, is really about the validity of the regression theorem.  Because if bitcoin doesn't fit the theorem, then the theorem is disproven.

As for whether my point is a long shot, it isn't.  It's exactly dead on.  That's why I'm surprised that the point never comes up.  It's impressive that Satoshi saw the barterability of proof-of-work tokens and jumped right from there to turning them into money.  To understand both cryptography and economics enough to see this possibility and actually implement it is a stroke of genius.

[xxjs]

That was a long shot. Do you really need there to be intrinsic value in bitcoins?

If bitcoin is to fit the regression theorem, then yes bitcoin would need to have an intrinsic, or more accurately, a barterable value.

This discussion isn't really about bitcoin, though, is it?  Bitcoin clearly has a value and clearly has utility as a money.  This discussion, I think, is really about the validity of the regression theorem.  Because if bitcoin doesn't fit the theorem, then the theorem is disproven.

As for whether my point is a long shot, it isn't.  It's exactly dead on.  That's why I'm surprised that the point never comes up.  It's impressive that Satoshi saw the barterability of proof-of-work tokens and jumped right from there to turning them into money.  To understand both cryptography and economics enough to see this possibility and actually implement it is a stroke of genius.

I don't see the need to satisfy the regression theorem. With fiat being around as an example for fifty years, people have no problem seeing that a currency without intrinsic value could work. The problem is only to disperse some bitcoins and trigger one exchange. Maybe it was the historic pizza exchange. Mises developed his therories over time, it did not come to him from the gods. Had he lived now, we might have another version.

If you really need it to have intrinsic value, you can anyway not use the cost of production. It has to be a utility value. Bragging power comes to mind. Satisfaction of inventing the thing. Satisfaction of having optimized the mining program. Satisfaction of dreaming about bitcoins as a world currency while sitting in a dark room at night, looking at the hash per second tachometer. Showing a wallet display to your little sister, feeling smarter. Something like that. If anything at all, the utility value of each bitcoin must have been miniscule in the very beginning.

[n8rwJeTt8TrrLKPa55eU]

I don't see the need to satisfy the regression theorem. With fiat being around as an example for fifty years, people have no problem seeing that a currency without intrinsic value could work. The problem is only to disperse some bitcoins and trigger one exchange. Maybe it was the historic pizza exchange. Mises developed his therories over time, it did not come to him from the gods. Had he lived now, we might have another version.

If you really need it to have intrinsic value, you can anyway not use the cost of production. It has to be a utility value. Bragging power comes to mind. Satisfaction of inventing the thing. Satisfaction of having optimized the mining program. Satisfaction of dreaming about bitcoins as a world currency while sitting in a dark room at night, looking at the hash per second tachometer. Showing a wallet display to your little sister, feeling smarter. Something like that. If anything at all, the utility value of each bitcoin must have been miniscule in the very beginning.

I like your two lines of thought.

To put it in experimental terms, the widespread existence and acceptance of fiat money today is a different initial condition versus the starting point for metallic money.  And his theorem only applies under the single initial condition where humans have not yet experienced unbacked units of account.

Non-money primitive humans and post-money fiat humans could be thought of as two conceptually different species in terms of their capacity for abstract thought, with previous humans only being able to attach value to physical objects versus current humans who have been conditioned over decades (for better or worse) to accept intangible fiat tokens as valid representations of value.

So let's all thank Nixon for closing the gold window and making Bitcoin possible

[swappermall]

"So let's all thank Nixon for closing the gold window and making Bitcoin possible"

Thank you, Nixon.  I never thought I would ever say that.

[xxjs]

I don't see the need to satisfy the regression theorem. With fiat being around as an example for fifty years, people have no problem seeing that a currency without intrinsic value could work. The problem is only to disperse some bitcoins and trigger one exchange. Maybe it was the historic pizza exchange. Mises developed his therories over time, it did not come to him from the gods. Had he lived now, we might have another version.

If you really need it to have intrinsic value, you can anyway not use the cost of production. It has to be a utility value. Bragging power comes to mind. Satisfaction of inventing the thing. Satisfaction of having optimized the mining program. Satisfaction of dreaming about bitcoins as a world currency while sitting in a dark room at night, looking at the hash per second tachometer. Showing a wallet display to your little sister, feeling smarter. Something like that. If anything at all, the utility value of each bitcoin must have been miniscule in the very beginning.

I like your two lines of thought.

To put it in experimental terms, the widespread existence and acceptance of fiat money today is a different initial condition versus the starting point for metallic money.  And his theorem only applies under the single initial condition where humans have not yet experienced unbacked units of account.

Non-money primitive humans and post-money fiat humans could be thought of as two conceptually different species in terms of their capacity for abstract thought, with previous humans only being able to attach value to physical objects versus current humans who have been conditioned over decades (for better or worse) to accept intangible fiat tokens as valid representations of value.

So let's all thank Nixon for closing the gold window and making Bitcoin possible

Well put.

[n8rwJeTt8TrrLKPa55eU]

[painlord2k]

People here didn't understand the Regression Theorem abstractly. The point is to generalize it more, not less.
Try to use praxeology, not other tools, to understand economics.
The praxeological analysis never concern itself with the reasons of actions, only with the effects of actions.
BTW praxeology is the tool used by Austrian economists to analyze the market behavior.

There is a simple explanation of why bitcoins have value and Mises's Regression Theorem is right.

http://wiki.mises.org/wiki/Regression_theorem

"People today expect money to have a certain purchasing power tomorrow, because of their memory of its purchasing power yesterday. We then push the problem back one step. People yesterday anticipated today's purchasing power, because they remembered that money could be exchanged for other goods and services two days ago. And so on."

The "two pizza for 10K bitcoins" is the first recorded exchange of something with a hard value for bitcoin.

The reason the guy gave two pizzas for 10k bitcoins is unimportant. What matter is the act of buying "two pizzas for 10k bitcoins". 

The day after, people (the pizza guys and the bitcoin guy and everyone that knew of the transaction) have a price point to remember.
It doesn't matter if it a good point, a bad point, a neutral point or a random point.
The day after people would remember a price point and they would decide if they want pay less or more to obtain bitcoins.

The same was true for any other good or service exchange for bitcoin. The reason people do the exchange is immaterial. But for every exchange there is a price point to be remembered.
When they started to be enough, these price points started to converge on a smaller band (like the theory would expect) because people try to maximize their expected profits.

[xxjs]

People here didn't understand the Regression Theorem abstractly. The point is to generalize it more, not less.
Try to use praxeology, not other tools, to understand economics.
The praxeological analysis never concern itself with the reasons of actions, only with the effects of actions.
BTW praxeology is the tool used by Austrian economists to analyze the market behavior.

There is a simple explanation of why bitcoins have value and Mises's Regression Theorem is right.

http://wiki.mises.org/wiki/Regression_theorem

"People today expect money to have a certain purchasing power tomorrow, because of their memory of its purchasing power yesterday. We then push the problem back one step. People yesterday anticipated today's purchasing power, because they remembered that money could be exchanged for other goods and services two days ago. And so on."

The "two pizza for 10K bitcoins" is the first recorded exchange of something with a hard value for bitcoin.

The reason the guy gave two pizzas for 10k bitcoins is unimportant. What matter is the act of buying "two pizzas for 10k bitcoins". 

The day after, people (the pizza guys and the bitcoin guy and everyone that knew of the transaction) have a price point to remember.
It doesn't matter if it a good point, a bad point, a neutral point or a random point.
The day after people would remember a price point and they would decide if they want pay less or more to obtain bitcoins.

The same was true for any other good or service exchange for bitcoin. The reason people do the exchange is immaterial. But for every exchange there is a price point to be remembered.
When they started to be enough, these price points started to converge on a smaller band (like the theory would expect) because people try to maximize their expected profits.

But the regression theorem requires that the money have value each prior day, even when you get all the way back to the day before the moneystuff became money. Hence the need for an intrinsic value. According to the regression theorem, the pizza maker must have some idea of bitcoin worth, and with no prior exchanges it must have been the intrinsic value. Thats why it seems the regression theorem does not work for bitcoins. You either have to use fantasy and invent some intrinsic value, or you have to modernize the regression theorem.

[justusranvier]

Thats why it seems the regression theorem does not work for bitcoins. You either have to use fantasy and invent some intrinsic value, or you have to modernize the regression theorem.

Or you don't define Bitcoin as money, so the regression theory doesn't apply.

Bitcoin : money :: Internet : newspaper

[Walter Rothbard]

But the regression theorem requires that the money have value each prior day, even when you get all the way back to the day before the moneystuff became money. Hence the need for an intrinsic value.

I thought the regression theorem came from economists who do not believe in intrinsic value and believe that all value is subjective.  I think you may be mixing and matching incompatible economic concepts.

[xxjs]

Thats why it seems the regression theorem does not work for bitcoins. You either have to use fantasy and invent some intrinsic value, or you have to modernize the regression theorem.

Or you don't define Bitcoin as money, so the regression theory doesn't apply.

Bitcoin : money :: Internet : newspaper

You definitely have to define bitcoin as money. It has all the required features, and it is used in exchanges.

[xxjs]

But the regression theorem requires that the money have value each prior day, even when you get all the way back to the day before the moneystuff became money. Hence the need for an intrinsic value.

I thought the regression theorem came from economists who do not believe in intrinsic value and believe that all value is subjective.  I think you may be mixing and matching incompatible economic concepts.

Intrinsic value is value outside of the moneyness value. Gold has it. Subjective? It doesn't matter, as it is up to the actors to define it and express it as actions on the market.

[painlord2k]

But the regression theorem requires that the money have value each prior day, even when you get all the way back to the day before the moneystuff became money. Hence the need for an intrinsic value. According to the regression theorem, the pizza maker must have some idea of bitcoin worth, and with no prior exchanges it must have been the intrinsic value. Thats why it seems the regression theorem does not work for bitcoins. You either have to use fantasy and invent some intrinsic value, or you have to modernize the regression theorem.

"People today expect money to have a certain purchasing power tomorrow, because of their memory of its purchasing power yesterday."
There is no intrinsic value about money. There is no intrinsic value about any and all goods and services in Austrian Economics.
It is "expected purchasing power" depending on the "past purchasing power".

The reason the exchange happened is immaterial after it happened. It doesn't matter What matter is the exchange happened.
The pizza maker could have accepted the transaction for a lot of reasons or just wrote "Yes" in the wrong chat.

The effect is the day after the seller of bitcoin will remember he sold 10K bitcoins for 2 pizzas (10 US$ retail price, 5 US$ cost) (so he valued the 10K bitcoins he sold less than two pizzas) and the pizza seller would remember he bough 10k bitcoins for two pizzas, so he valued them more than the two pizzas he sold. And others would remember the same.
In the mean time, two pizzas would be consumed and 10K bitcoins would be added on the balance sheet of the pizza maker and subtracted from the balance sheet of the coin seller.

Now people know pizzas was bough for bitcoins in the past and they know a price point.
If enough of these exchanges happened in a  short time then market take care of the rest.

Because bitcoin behave as a currency better than other types of currency (because it was designed to do so) as it start to be used (for whatever reason even just random accident) it become a preferred currency to hold than the other currencies. So people tend to exchange their paper currencies for bitcoin and spend their paper currencies more than bitcoin. This raise the price of bitcoin in the other paper currencies and reinforce the feedback.

[justusranvier]

You definitely have to define bitcoin as money. It has all the required features, and it is used in exchanges.

That's not a good reason to classify bitcoin as money. Bitcoin has additional features that money lacks. We don't have a word for it yet but what ever Bitcoin is, money is a subset of that.

[xxjs]

But the regression theorem requires that the money have value each prior day, even when you get all the way back to the day before the moneystuff became money. Hence the need for an intrinsic value. According to the regression theorem, the pizza maker must have some idea of bitcoin worth, and with no prior exchanges it must have been the intrinsic value. Thats why it seems the regression theorem does not work for bitcoins. You either have to use fantasy and invent some intrinsic value, or you have to modernize the regression theorem.

"People today expect money to have a certain purchasing power tomorrow, because of their memory of its purchasing power yesterday."
There is no intrinsic value about money. There is no intrinsic value about any and all goods and services in Austrian Economics.
It is "expected purchasing power" depending on the "past purchasing power".

The reason the exchange happened is immaterial after it happened. It doesn't matter What matter is the exchange happened.
The pizza maker could have accepted the transaction for a lot of reasons or just wrote "Yes" in the wrong chat.

The effect is the day after the seller of bitcoin will remember he sold 10K bitcoins for 2 pizzas (10 US$ retail price, 5 US$ cost) (so he valued the 10K bitcoins he sold less than two pizzas) and the pizza seller would remember he bough 10k bitcoins for two pizzas, so he valued them more than the two pizzas he sold. And others would remember the same.
In the mean time, two pizzas would be consumed and 10K bitcoins would be added on the balance sheet of the pizza maker and subtracted from the balance sheet of the coin seller.

Now people know pizzas was bough for bitcoins in the past and they know a price point.
If enough of these exchanges happened in a  short time then market take care of the rest.

Because bitcoin behave as a currency better than other types of currency (because it was designed to do so) as it start to be used (for whatever reason even just random accident) it become a preferred currency to hold than the other currencies. So people tend to exchange their paper currencies for bitcoin and spend their paper currencies more than bitcoin. This raise the price of bitcoin in the other paper currencies and reinforce the feedback.

You just refuted the regression theorem here. I don't disagree.

[xxjs]

You definitely have to define bitcoin as money. It has all the required features, and it is used in exchanges.

That's not a good reason to classify bitcoin as money. Bitcoin has additional features that money lacks. We don't have a word for it yet but what ever Bitcoin is, money is a subset of that.

We have words.

Compared to paper fiat:

Possible to transfer over the net.
Can be backed up.
You need a computer

What kind of properties does bitcoin have that makes it not money?

[Longmarch]

But the regression theorem requires that the money have value each prior day, even when you get all the way back to the day before the moneystuff became money. Hence the need for an intrinsic value.

I thought the regression theorem came from economists who do not believe in intrinsic value and believe that all value is subjective.  I think you may be mixing and matching incompatible economic concepts.

I agree with this.  I can't see how the term intrinsic value even makes any sense in this conversation.

[notme]

You definitely have to define bitcoin as money. It has all the required features, and it is used in exchanges.

That's not a good reason to classify bitcoin as money. Bitcoin has additional features that money lacks. We don't have a word for it yet but what ever Bitcoin is, money is a subset of that.

Exactly.  Bitcoin is more than any other money ever was.  What other money can move from here to the other side of the world faster than I can make dinner?

[xxjs]

But the regression theorem requires that the money have value each prior day, even when you get all the way back to the day before the moneystuff became money. Hence the need for an intrinsic value.

I thought the regression theorem came from economists who do not believe in intrinsic value and believe that all value is subjective.  I think you may be mixing and matching incompatible economic concepts.

I agree with this.  I can't see how the term intrinsic value even makes any sense in this conversation.

There is confusion of what intrinsic value is. It is value that is not exchange value. Subjective if you like, the value is decided by the value scales of the actors on the market. It is used with commodities that come to be used as money. The moneyness of the commodity makes for additional value, compared to only the use value of the commodity outside of its moneyness. If apples are not money, they can be eaten, and may be have the same value as oranges. If apples are money, it will have additional value as medium of exchange. It is really not difficult, but the word intrinsic has a meaning outside the realm of money, therefore confusion.

[painlord2k]

But the regression theorem requires that the money have value each prior day, even when you get all the way back to the day before the moneystuff became money. Hence the need for an intrinsic value. According to the regression theorem, the pizza maker must have some idea of bitcoin worth, and with no prior exchanges it must have been the intrinsic value. Thats why it seems the regression theorem does not work for bitcoins. You either have to use fantasy and invent some intrinsic value, or you have to modernize the regression theorem.

"People today expect money to have a certain purchasing power tomorrow, because of their memory of its purchasing power yesterday."

You just refuted the regression theorem here. I don't disagree.

And where did I accomplish this mighty task?
Writing that I did it is not proving I did it.

The regression theorem state tomorrow expected purchasing power of money is dependent on the known yesterday's purchasing power of money.
The regression is not infinite because there must be a starting point.
For fiat money is when the fiat money was backed by gold; for gold is when it was for the first time exchanged to be used for an indirect exchange (the reason money exist is indirect exchange); for bitcoin was when two pizzas were exchange for 10K btc.
Why gold was exchanged for paper, goats for gold and pizza for Bitcoin is unimportant as praxeology deal not with the reasons of actions but with the consequences of actions.

[xxjs]

But the regression theorem requires that the money have value each prior day, even when you get all the way back to the day before the moneystuff became money. Hence the need for an intrinsic value. According to the regression theorem, the pizza maker must have some idea of bitcoin worth, and with no prior exchanges it must have been the intrinsic value. Thats why it seems the regression theorem does not work for bitcoins. You either have to use fantasy and invent some intrinsic value, or you have to modernize the regression theorem.

"People today expect money to have a certain purchasing power tomorrow, because of their memory of its purchasing power yesterday."

You just refuted the regression theorem here. I don't disagree.

And where did I accomplish this mighty task?
Writing that I did it is not proving I did it.

The regression theorem state tomorrow expected purchasing power of money is dependent on the known yesterday's purchasing power of money.
The regression is not infinite because there must be a starting point.
For fiat money is when the fiat money was backed by gold; for gold is when it was for the first time exchanged to be used for an indirect exchange (the reason money exist is indirect exchange); for bitcoin was when two pizzas were exchange for 10K btc.
Why gold was exchanged for paper, goats for gold and pizza for Bitcoin is unimportant as praxeology deal not with the reasons of actions but with the consequences of actions.

It is infinite for money, that is, it has go go backwards to a point in time there was no money, only barter. You said it again in the quote just here. fiat -> gold backed money -> gold -> gold first time it was used in indirect exchange --> ...then you missed the necessary precondition for the regression theorem: gold exchanged in barter for its intrinsic value*). It is the only way (according to the regression theorem) there could be a previous gold value for the first indirect exchange.

*) There were probably other commodities before gold, but that is not the point here.

[Anon136]

Did I get any of the facts wrong? Is my reasoning flawed?

you can pull the Ace and say that the original value of a bitcoin was equal to the electricity (electrons, copper wire degraded, silicon & chipsets depreciation) that went into the creation of it.

This is called the labor theory of value and it was subscribed to by early economists like adam smith. Today very few economists mainstream or otherwise accept the labor theory of value. It is generally understood by economists today that the value of an object is determined by the relative subjective valuations of consumers. Bitcoin was valuable early on not because of the labor required to make it nor the precident of value but rather the foresight of some clever speculators who recognized the utility as a medium of exchange that it could have in the future and were willing to take an extremely high risk/high reward gamble.

[painlord2k]

The regression theorem state tomorrow expected purchasing power of money is dependent on the known yesterday's purchasing power of money.
The regression is not infinite because there must be a starting point.
For fiat money is when the fiat money was backed by gold; for gold is when it was for the first time exchanged to be used for an indirect exchange (the reason money exist is indirect exchange); for bitcoin was when two pizzas were exchange for 10K btc.
Why gold was exchanged for paper, goats for gold and pizza for Bitcoin is unimportant as praxeology deal not with the reasons of actions but with the consequences of actions.

It is infinite for money, that is, it has go go backwards to a point in time there was no money, only barter. You said it again in the quote just here. fiat -> gold backed money -> gold -> gold first time it was used in indirect exchange --> ...then you missed the necessary precondition for the regression theorem: gold exchanged in barter for its intrinsic value*). It is the only way (according to the regression theorem) there could be a previous gold value for the first indirect exchange.

*) There were probably other commodities before gold, but that is not the point here.

It is not infinite for money. We don't know how many exchange happened between the first use of gold as an indirect mean of exchange (aka money) and the moment fiat money was introduced (backed by gold) and then how many exchange happened between the time fiat money were backed by gold and when the backing stopped.
But it is not infinite time. Also a transaction require time, so we have a finite time divided by a finite period of time. It must give a finite number last time I checked math.
So there must be a finite number of transactions in human history where gold is involved.
So the regression can not go on infinity. It must have a starting point.
In case of gold is when gold was first acquire with barter to be used later for an indirect exchange. The reason it was exchanged and what was the value exchanged for it is irrelevant (because value is subjective to the two humans involved in the exchange and we can not know it). What is not subjective was the price (we can know it). Once there is a price, the market forces will move it up and down in consequence of supply and demand.

In the case of bitcoin the subjective values of 10k BTC could be zero for the guy paying with them two pizzas (from his point of view he was giving nothing for something). And the value of the two pizzas sold by the pizza maker could be zero (because he had two already cooked no one wanted - and even in this case he could have given something he valued nothing for something with an unknown value). But the exchange established a price level market forces could move up and down.

[hazek]

gold exchanged in barter for its intrinsic value*

*) There were probably other commodities before gold, but that is not the point here.

Specifically what was that? It looked pretty in someone's nose?

[painlord2k]

Did I get any of the facts wrong? Is my reasoning flawed?

you can pull the Ace and say that the original value of a bitcoin was equal to the electricity (electrons, copper wire degraded, silicon & chipsets depreciation) that went into the creation of it.

This is called the labor theory of value and it was subscribed to by early economists like adam smith. Today very few economists mainstream or otherwise accept the labor theory of value. It is generally understood by economists today that the value of an object is determined by the relative subjective valuations of consumers. Bitcoin was valuable early on not because of the labor required to make it nor the precedent of value but rather the foresight of some clever speculators who recognized the utility as a medium of exchange that it could have in the future and were willing to take an extremely high risk/high reward gamble.

In fact, MJGrae define the cost to produce a thing as its value. It is wrong. From this definition a hand made sword would be more valuable (and would cost more to buy) than the same sword produced in a factory at a lower cost. On the market, they are two swords with no detectable difference, so they will be valued the same from the buyers.
If the cheapest (in this case the industrial) producer is able to satisfy the demand enough to push the price to a level where the artisan can not make a profit (but he can), the artisan will exist the market.
Competition with other industrial producers (and other goods and services) will drive the price nearer the production cost.
This is the reason in the end prices approximate production costs.

Anon136 "speculators ... willing to take a...  gamble" is on the point.
A speculator is any and all agents acting on the market, because they act now for a future reward be it a far or near future and be it a small or big reward.
So as the speculators take the gamble, they establish price levels and demand schedules. On these the market forces act moving the prices up and down in relation with supply and demand.

[xxjs]

gold exchanged in barter for its intrinsic value*

*) There were probably other commodities before gold, but that is not the point here.

Specifically what was that? It looked pretty in someone's nose?

That is one example yes.

[hazek]

gold exchanged in barter for its intrinsic value*

*) There were probably other commodities before gold, but that is not the point here.

Specifically what was that? It looked pretty in someone's nose?

That is one example yes.

And why can't bitcoins have the same "intrinsic value"?

[cbeast]

Bitcoin as a protocol, is a tool that functions on computers. Bitcoin rewards are the unit of measure for the tool. They become commodities when they are exchanged for other units of value. The tool itself is as useful as the person finds it just like any other tool, like a paintbrush or a language. Some understand it well and some don't, but we all need to use them from time to time.

[mobodick]

Did I get any of the facts wrong? Is my reasoning flawed?

I don't see any facts that are wrong. In fact if he really wants to argue the idea that there is supposedly nothing backing bitcoins, you can pull the Ace and say that the original value of a bitcoin was equal to the electricity (electrons, copper wire degraded, silicon & chipsets depreciation) that went into the creation of it. On top of that, because of those qualities and the fact that they were packaged into a nice little electronic token gave a slight buffer not to the intrinsic value but to the perceived value which, again, can be traced back to what the perceived value of other commodity currencies were at their own times.

I think you're spot on.

It would only have value for the maker, not afor any potential buyer.
Imagine this guy walks up to you with a hideous photoshop.
He tries to sell it to you for $199,99 but seing the thing makes your stomache turn.
B.t.w. the picture is just data. It is stored somewhere on the internet.
But then he pulls his Ace.
He sais: "But i have worked on it for 3 months! I've put so much time and energy into it that it has to be worth something. Right?"

So, how much would you be willing to spend on the picture for the fact that the man put energy into creating it?


(Hint: If something cost an X ammount of monies that doesn't mean it is valued at the same X ammount of monies)

[mobodick]

gold exchanged in barter for its intrinsic value*

*) There were probably other commodities before gold, but that is not the point here.

Specifically what was that? It looked pretty in someone's nose?

That is one example yes.

And why can't bitcoins have the same "intrinsic value"?

Of course they can. The question is, do they?

[xxjs]

gold exchanged in barter for its intrinsic value*

*) There were probably other commodities before gold, but that is not the point here.

Specifically what was that? It looked pretty in someone's nose?

That is one example yes.

And why can't bitcoins have the same "intrinsic value"?

Bitcoins have no intrinsic value, as
1) You can not use bitcoins as wall covering
2) You can not use bitcoins to wipe your ass
3) You can not use bitcoins as ear-rings
4) You can not use bitcoins to create great electrical connectors
5) You can not use bitcoins as paperweights
6) You can not toss bitcoins to randomly select heads or tails
7) You can not throw bitcoins on somebody when you are angry
and so on.

What _can_ you use bitcoins for, other than exchange?

[notme]

gold exchanged in barter for its intrinsic value*

*) There were probably other commodities before gold, but that is not the point here.

Specifically what was that? It looked pretty in someone's nose?

That is one example yes.

And why can't bitcoins have the same "intrinsic value"?

Bitcoins have no intrinsic value, as
1) You can not use bitcoins as wall covering
2) You can not use bitcoins to wipe your ass
3) You can not use bitcoins as ear-rings
4) You can not use bitcoins to create great electrical connectors
5) You can not use bitcoins as paperweights
6) You can not toss bitcoins to randomly select heads or tails
7) You can not throw bitcoins on somebody when you are angry
and so on.

What _can_ you use bitcoins for, other than exchange?

You might not be able to use bitcoins themselves to randomly select heads or tails, but using a specific block hash is agreed to be a good random data source that provides proof that the random number generator is not cheating for the benefit of someone else.

Also, my Casascius coins also counter 5, 6, and 7.  And maybe 3 if you don't mind looking like an idiot.  My bitcoin check I got free with my last order can counter 1 and 2.  All that's left is electrical connectors, and Casacius makes coins that would work well for that too, I just don't have any.

[hazek]

gold exchanged in barter for its intrinsic value*

*) There were probably other commodities before gold, but that is not the point here.

Specifically what was that? It looked pretty in someone's nose?

That is one example yes.

And why can't bitcoins have the same "intrinsic value"?

Bitcoins have no intrinsic value, as
1) You can not use bitcoins as wall covering
2) You can not use bitcoins to wipe your ass
3) You can not use bitcoins as ear-rings
4) You can not use bitcoins to create great electrical connectors
5) You can not use bitcoins as paperweights
6) You can not toss bitcoins to randomly select heads or tails
7) You can not throw bitcoins on somebody when you are angry
and so on.

What _can_ you use bitcoins for, other than exchange?

Really? So why then did the guy trade his two pizzas for 10k bitcoins, that, as you claim, are useless for anything else than exchange? Are you really arguing that he did it because he though they were worth two pizzas and that he could go to someone else and exchange them for something else?


Couldn't it perhaps actually be the case that two pizzas seemed a fair price for him to hold 10k units of this weird digital token that he fancied? Like a shiny rock stuck in someone's nose?

[Walter Rothbard]

Before bitcoins had any value on the market, they were sparkly.  They sparkled and sparkled and attracted lots of us by how interesting/sparkly they were.  The original trade for pizzas happened because the bitcoins were sparkly (interesting), and the pizza seller felt he'd rather have 10K bitcoins than the money used to purchase the pizza.  That's how sparkly (valueable) they were!  So I guess that is intrinsic value.

[hazek]

Before bitcoins had any value on the market, they were sparkly.  They sparkled and sparkled and attracted lots of us by how interesting/sparkly they were.  The original trade for pizzas happened because the bitcoins were sparkly (interesting), and the pizza seller felt he'd rather have 10K bitcoins than the money used to purchase the pizza.  That's how sparkly (valueable) they were!  So I guess that is intrinsic value.

Your sarcasm aside, what do you propose was the reason for some guy to trade his two pizzas for 10k bitcoins? Entertainment value if the transfer worked? How is that different from a rock stuck in someone's nose? Other reasons?

Hmm actually after reading your post again I now think you aren't being sarcastic and yeah that is precisely the case that I'm trying to make!

[painlord2k]

Before bitcoins had any value on the market, they were sparkly.  They sparkled and sparkled and attracted lots of us by how interesting/sparkly they were.  The original trade for pizzas happened because the bitcoins were sparkly (interesting), and the pizza seller felt he'd rather have 10K bitcoins than the money used to purchase the pizza.  That's how sparkly (valueable) they were!  So I guess that is intrinsic value.

Your sarcasm aside, what do you propose was the reason for some guy to trade his two pizzas for 10k bitcoins? Entertainment value if the transfer worked? How is that different from a rock stuck in someone's nose? Other reasons?

Hmm actually after reading your post again I now think you aren't being sarcastic and yeah that is precisely the case that I'm trying to make!

But anyway, the reasons two pizza were exchange for 10K BTC ido not matter.
What matter is they were exchanged.
And they were exchanged because at the time the pizza guy valued two pizza less than 10K BTC and the BTC miner guy valued 10K BTC less than two pizzas.

At the end of the exchange the two guys were subjectively better.
Then others did the same (exchanged BTC for goods or services). This established a demands for good and services paid with BTC and a demand of BTC to pay goods and services.
 
Here the fact BTC have the features of currency/money in a degree greater than the other currencies/types of money cause a continuous transfer of value from the total of BTC in existence and the total of the other currencies in existence (because BTC are better than other forms of currencies at protecting their purchasing power).

[mobodick]

gold exchanged in barter for its intrinsic value*

*) There were probably other commodities before gold, but that is not the point here.

Specifically what was that? It looked pretty in someone's nose?

That is one example yes.

And why can't bitcoins have the same "intrinsic value"?

Bitcoins have no intrinsic value, as
1) You can not use bitcoins as wall covering
2) You can not use bitcoins to wipe your ass
3) You can not use bitcoins as ear-rings
4) You can not use bitcoins to create great electrical connectors
5) You can not use bitcoins as paperweights
6) You can not toss bitcoins to randomly select heads or tails
7) You can not throw bitcoins on somebody when you are angry
and so on.

What _can_ you use bitcoins for, other than exchange?

You might not be able to use bitcoins themselves to randomly select heads or tails, but using a specific block hash is agreed to be a good random data source that provides proof that the random number generator is not cheating for the benefit of someone else.

Also, my Casascius coins also counter 5, 6, and 7.  And maybe 3 if you don't mind looking like an idiot.  My bitcoin check I got free with my last order can counter 1 and 2.  All that's left is electrical connectors, and Casacius makes coins that would work well for that too, I just don't have any.

The properties of 5, 6 and 7 are entirely due to the coin part. No actual bitcoins are required to get these properties. Hence it is not intrinsic to bitcoin. They are generic generic properties carried by all coin-like objects.

The value of the bitcoin system as a random number generator is marginal. For most people this does not represent any value.

[hazek]

gold exchanged in barter for its intrinsic value*

*) There were probably other commodities before gold, but that is not the point here.

Specifically what was that? It looked pretty in someone's nose?

That is one example yes.

And why can't bitcoins have the same "intrinsic value"?

Bitcoins have no intrinsic value, as
1) You can not use bitcoins as wall covering
2) You can not use bitcoins to wipe your ass
3) You can not use bitcoins as ear-rings
4) You can not use bitcoins to create great electrical connectors
5) You can not use bitcoins as paperweights
6) You can not toss bitcoins to randomly select heads or tails
7) You can not throw bitcoins on somebody when you are angry
and so on.

What _can_ you use bitcoins for, other than exchange?

You might not be able to use bitcoins themselves to randomly select heads or tails, but using a specific block hash is agreed to be a good random data source that provides proof that the random number generator is not cheating for the benefit of someone else.

Also, my Casascius coins also counter 5, 6, and 7.  And maybe 3 if you don't mind looking like an idiot.  My bitcoin check I got free with my last order can counter 1 and 2.  All that's left is electrical connectors, and Casacius makes coins that would work well for that too, I just don't have any.

The properties of 5, 6 and 7 are entirely due to the coin part. No actual bitcoins are required to get these properties. Hence it is not intrinsic to bitcoin. They are generic generic properties carried by all coin-like objects.

The value of the bitcoin system as a random number generator is marginal. For most people this does not represent any value.

Once upon a time having a shiny rock stuck up your nose wasn't either.

[mobodick]

Before bitcoins had any value on the market, they were sparkly.  They sparkled and sparkled and attracted lots of us by how interesting/sparkly they were.  The original trade for pizzas happened because the bitcoins were sparkly (interesting), and the pizza seller felt he'd rather have 10K bitcoins than the money used to purchase the pizza.  That's how sparkly (valueable) they were!  So I guess that is intrinsic value.

I would say that the trade was made because the seller expected bitcoin to have a fiat value in the future. It is self referential.
I would say the intrinsic value of a something that is used as a currency is what someone would give for it when it is not used as a curreny.
In case of gold you are left with a shiny metal that you can look at.
In the case of bitcoin you have a blob of data.
Bitcoin is worth nothing if it is not used as a currency. It has no instrinsic value.

[mobodick]

gold exchanged in barter for its intrinsic value*

*) There were probably other commodities before gold, but that is not the point here.

Specifically what was that? It looked pretty in someone's nose?

That is one example yes.

And why can't bitcoins have the same "intrinsic value"?

Bitcoins have no intrinsic value, as
1) You can not use bitcoins as wall covering
2) You can not use bitcoins to wipe your ass
3) You can not use bitcoins as ear-rings
4) You can not use bitcoins to create great electrical connectors
5) You can not use bitcoins as paperweights
6) You can not toss bitcoins to randomly select heads or tails
7) You can not throw bitcoins on somebody when you are angry
and so on.

What _can_ you use bitcoins for, other than exchange?

You might not be able to use bitcoins themselves to randomly select heads or tails, but using a specific block hash is agreed to be a good random data source that provides proof that the random number generator is not cheating for the benefit of someone else.

Also, my Casascius coins also counter 5, 6, and 7.  And maybe 3 if you don't mind looking like an idiot.  My bitcoin check I got free with my last order can counter 1 and 2.  All that's left is electrical connectors, and Casacius makes coins that would work well for that too, I just don't have any.

The properties of 5, 6 and 7 are entirely due to the coin part. No actual bitcoins are required to get these properties. Hence it is not intrinsic to bitcoin. They are generic generic properties carried by all coin-like objects.

The value of the bitcoin system as a random number generator is marginal. For most people this does not represent any value.

Once upon a time having a shiny rock stuck up your nose wasn't either.

There is no known historical time when shiny rare stuff had no intrinsic value.
So for all practicality, humans appreciated such intrinsic value long before the shiny was used as a currency.
Bitcoin otoh is not shiny at all outside of the context of bitcoin. So without the network actually functioning it is just a pile of bits and not shiny at all.

[notme]

I think this is very shiny:
http://www.bitcoin.org/bitcoin.pdf

It is the first thing I read and I was hooked.  Haven't been able to get enough since, but then again I've got a degree in Math and Computer Science, and most people would laugh at me for being turned on by a whitepaper.

[mobodick]

I think this is very shiny:
http://www.bitcoin.org/bitcoin.pdf

It is the first thing I read and I was hooked.  Haven't been able to get enough since, but then again I've got a degree in Math and Computer Science, and most people would laugh at me for being turned on by a whitepaper.

I can get you some attempts at proofing Fermats last theorem for cheap...
Eh? Eh?

[Walter Rothbard]

In case of gold you are left with a shiny metal that you can look at.
In the case of bitcoin you have a blob of data.

Yes, but for people interested in cryptography, it's a scintillating blob!

[Walter Rothbard]

I think this is very shiny:
http://www.bitcoin.org/bitcoin.pdf

It is the first thing I read and I was hooked.  Haven't been able to get enough since, but then again I've got a degree in Math and Computer Science, and most people would laugh at me for being turned on by a whitepaper.

I know exactly what you mean!!

[Walter Rothbard]

Bitcoin otoh is not shiny at all outside of the context of bitcoin. So without the network actually functioning it is just a pile of bits and not shiny at all.

The network functioned for 503 days before somebody bought a pizza with bitcoins, so the bitcoins were quite shiny by then and promised to continue to be shiny for the foreseeable future.

[hazek]

gold exchanged in barter for its intrinsic value*

*) There were probably other commodities before gold, but that is not the point here.

Specifically what was that? It looked pretty in someone's nose?

That is one example yes.

And why can't bitcoins have the same "intrinsic value"?

Bitcoins have no intrinsic value, as
1) You can not use bitcoins as wall covering
2) You can not use bitcoins to wipe your ass
3) You can not use bitcoins as ear-rings
4) You can not use bitcoins to create great electrical connectors
5) You can not use bitcoins as paperweights
6) You can not toss bitcoins to randomly select heads or tails
7) You can not throw bitcoins on somebody when you are angry
and so on.

What _can_ you use bitcoins for, other than exchange?

You might not be able to use bitcoins themselves to randomly select heads or tails, but using a specific block hash is agreed to be a good random data source that provides proof that the random number generator is not cheating for the benefit of someone else.

Also, my Casascius coins also counter 5, 6, and 7.  And maybe 3 if you don't mind looking like an idiot.  My bitcoin check I got free with my last order can counter 1 and 2.  All that's left is electrical connectors, and Casacius makes coins that would work well for that too, I just don't have any.

The properties of 5, 6 and 7 are entirely due to the coin part. No actual bitcoins are required to get these properties. Hence it is not intrinsic to bitcoin. They are generic generic properties carried by all coin-like objects.

The value of the bitcoin system as a random number generator is marginal. For most people this does not represent any value.

Once upon a time having a shiny rock stuck up your nose wasn't either.

There is no known historical time when shiny rare stuff had no intrinsic value.
So for all practicality, humans appreciated such intrinsic value long before the shiny was used as a currency.
Bitcoin otoh is not shiny at all outside of the context of bitcoin. So without the network actually functioning it is just a pile of bits and not shiny at all.

Semantics.

[notme]

I think this is very shiny:
http://www.bitcoin.org/bitcoin.pdf

It is the first thing I read and I was hooked.  Haven't been able to get enough since, but then again I've got a degree in Math and Computer Science, and most people would laugh at me for being turned on by a whitepaper.

I know exactly what you mean!!

If you can't see intrinsic value in bitcoin after reading the whitepaper, you didn't understand it.

[painlord2k]

Bitcoin otoh is not shiny at all outside of the context of bitcoin. So without the network actually functioning it is just a pile of bits and not shiny at all.

The network functioned for 503 days before somebody bought a pizza with bitcoins, so the bitcoins were quite shiny by then and promised to continue to be shiny for the foreseeable future.

And this is what the Regression Theorem require: the knowledge of the past allow to project a future expectation.
Before they were exchange for fun, to try if the transaction worked correctly or not, etc.
But not for a good or a service.
There was proof the network worked for a long time and the expectation it would be up for a long time. So who acquired bitcoin could use/give them to someone else in the future.

This is the part the barter have for gold. If it was exchanged before for a direct exchange it could be used after for an indirect exchange.

[mobodick]

Bitcoin otoh is not shiny at all outside of the context of bitcoin. So without the network actually functioning it is just a pile of bits and not shiny at all.

The network functioned for 503 days before somebody bought a pizza with bitcoins, so the bitcoins were quite shiny by then and promised to continue to be shiny for the foreseeable future.

Yes, but it is a feature of the system operating.
Bitcoins, by themselfs are stored energy that has no other use than to be bitcoin.
What you describe is economic value (the value it gets from being used in an economy).
Intrinsic value is what it is worth without the rest of the economy giving it value.

What you actually are saying is that after being a currency for 503 days it gained economic value. It was used as a currency.
A dollar bills intrinsic value is not that it can be used to buy stuff.
It's intrinsic value is that you can hang it on the wall to admire it or burn it for some heat, or some other such thing.
It is what you value about the thing when you disregad it's economical position.

So the 'I like it for its math' is actually some intrinsic value of the bitcoin system (like all forms of aesthetics) because it values bitcoin for something other than being used as currency.
Unfortunately that part is pure information so it is not specific to any combination of bits sitting on your computer. It would even be hard to appreciate that aspect of it so the best way to do it is propably to read some technical information.
And so it is just this technical information that is being valued, not bitcoin itself.

[mobodick]

Semantics. Definitions

[hazek]

Bitcoin otoh is not shiny at all outside of the context of bitcoin. So without the network actually functioning it is just a pile of bits and not shiny at all.

The network functioned for 503 days before somebody bought a pizza with bitcoins, so the bitcoins were quite shiny by then and promised to continue to be shiny for the foreseeable future.

Yes, but it is a feature of the system operating.
Bitcoins, by themselfs are stored energy that has no other use than to be bitcoin.
What you describe is economic value (the value it gets from being used in an economy).
Intrinsic value is what it is worth without the rest of the economy giving it value.

What you actually are saying is that after being a currency for 503 days it gained economic value. It was used as a currency.
A dollar bills intrinsic value is not that it can be used to buy stuff.
It's intrinsic value is that you can hang it on the wall to admire it or burn it for some heat, or some other such thing.
It is what you value about the thing when you disregad it's economical position.

So the 'I like it for its math' is actually some intrinsic value of the bitcoin system (like all forms of aesthetics) because it values bitcoin for something other than being used as currency.
Unfortunately that part is pure information so it is not specific to any combination of bits sitting on your computer. It would even be hard to appreciate that aspect of it so the best way to do it is propably to read some technical information.
And so it is just this technical information that is being valued, not bitcoin itself.

More semantics.

You should meet a hardcore MMORPG player and see how really they think some "stored energy" in the form of their fictional character that they play in a game is to them. If still don't know, we're in the digital age now..

[mobodick]

Bitcoin otoh is not shiny at all outside of the context of bitcoin. So without the network actually functioning it is just a pile of bits and not shiny at all.

The network functioned for 503 days before somebody bought a pizza with bitcoins, so the bitcoins were quite shiny by then and promised to continue to be shiny for the foreseeable future.

Yes, but it is a feature of the system operating.
Bitcoins, by themselfs are stored energy that has no other use than to be bitcoin.
What you describe is economic value (the value it gets from being used in an economy).
Intrinsic value is what it is worth without the rest of the economy giving it value.

What you actually are saying is that after being a currency for 503 days it gained economic value. It was used as a currency.
A dollar bills intrinsic value is not that it can be used to buy stuff.
It's intrinsic value is that you can hang it on the wall to admire it or burn it for some heat, or some other such thing.
It is what you value about the thing when you disregad it's economical position.

So the 'I like it for its math' is actually some intrinsic value of the bitcoin system (like all forms of aesthetics) because it values bitcoin for something other than being used as currency.
Unfortunately that part is pure information so it is not specific to any combination of bits sitting on your computer. It would even be hard to appreciate that aspect of it so the best way to do it is propably to read some technical information.
And so it is just this technical information that is being valued, not bitcoin itself.

More semantics.

You should meet a hardcore MMORPG player and see how really they think some "stored energy" in the form of their fictional character that they play in a game is to them. If still don't know, we're in the digital age now..

You don't have to explain that to me, i know enough mmo junkies. 
But the intrinsic value of a mmo character would be what you value it without using it in the mmo.
So, say blizzard kills wow and you have this character there that you realy love.
Its intrinsic value it how much it is worth to you without the wow environment.
So if wow ends, how much is the character then worth to the players.

It's not semantics as the word intrinsic has a certain meaning.
Using 'semantics' as an excuse for not defining it properly is bad practice and will lead to nonsense.

[hazek]

Its intrinsic value it how much it is worth to you without the wow environment.

Wrong.

That wow character doesn't exist by itself. It only exists when "alive" within the wow game with all it's properties.

Same goes for bitcoins, there's no such thing as just bitcoins. Bitcoins only exist within the whole package, the blockchain, the peer to peer network, the mining, ect.. the whole shabang.

[mobodick]

Its intrinsic value it how much it is worth to you without the wow environment.

Wrong.

That wow character doesn't exist by itself. It only exists when "alive" within the wow game with all it's properties.

Same goes for bitcoins, there's no such thing as just bitcoins. Bitcoins only exist within the whole package, the blockchain, the peer to peer network, the mining, ect.. the whole shabang.

By now i'm just going to blatantly ask you (to prevent us from debating different definitions of the word):
How do you define the word intrinsic in the context of valuing?

[xxjs]

gold exchanged in barter for its intrinsic value*

*) There were probably other commodities before gold, but that is not the point here.

Specifically what was that? It looked pretty in someone's nose?

That is one example yes.

And why can't bitcoins have the same "intrinsic value"?

Bitcoins have no intrinsic value, as
1) You can not use bitcoins as wall covering
2) You can not use bitcoins to wipe your ass
3) You can not use bitcoins as ear-rings
4) You can not use bitcoins to create great electrical connectors
5) You can not use bitcoins as paperweights
6) You can not toss bitcoins to randomly select heads or tails
7) You can not throw bitcoins on somebody when you are angry
and so on.

What _can_ you use bitcoins for, other than exchange?

You might not be able to use bitcoins themselves to randomly select heads or tails, but using a specific block hash is agreed to be a good random data source that provides proof that the random number generator is not cheating for the benefit of someone else.

Also, my Casascius coins also counter 5, 6, and 7.  And maybe 3 if you don't mind looking like an idiot.  My bitcoin check I got free with my last order can counter 1 and 2.  All that's left is electrical connectors, and Casacius makes coins that would work well for that too, I just don't have any.

Nice comments.

Randomly select: You can find randomness in bitcoins, but all of it comes eventually from the randomness generator in your computer, so it would be even easier to just grab an octet from /dev/urandom. The blockchain is novel, and the invention itself is valuable and other useful systems could be built on the same idea. Still, it hardly is intrinsic value to a bitcoin.

The Casascius coins is a special think not like any other coin. It is a real bitcoin because the key of an unspent output is hidden in it. You can toss it, but that intrinsic value is added as a metal casing for the real coin, and you have to pay extra to get that. I am still unsure how it relates to the regression theorem. Anyway, Casascius coins came after regular bitcoins in time.

[xxjs]

Intrinsic value: What the money stuff is useful for to you directly
Exchange value: The added value the money stuff has because it can be exchanged for useful things.

Everbody knows the value of a unit of money. Even if you don't know the offer price of all things at a certain time, you have an idea. If you go into a shop and look at the price of something interesting to you, you have some idea of what a good price is. Hence you have an idea of the value of money.

What the regression theorem tries to explain how this value came into being. Why can you buy something at all with a hundred dollar note, even if the seller can not do anything with the piece of paper itself? The first answer is yesterdays prices. But then what was the basis for yesterdays value? For every answer there will be a new question - what about the day before that? The answer, from the regression theorem, is that it is yesterdays value every day, until you go back to the day when there was no extra exchange value, only intrinsic value.

The dollar bill has this connection to previous days value all the way back. Bitcoin has not this connection, because there was in the beginning no link to the dollar. The vision of bitcoin as a money system does not count, because there was no way to connect the value of one bitcoin to an amount of dollars. This is the problem under discussion. Now it is evident, but there was a time where it was not possible to say what the value was.

[hazek]

Its intrinsic value it how much it is worth to you without the wow environment.

Wrong.

That wow character doesn't exist by itself. It only exists when "alive" within the wow game with all it's properties.

Same goes for bitcoins, there's no such thing as just bitcoins. Bitcoins only exist within the whole package, the blockchain, the peer to peer network, the mining, ect.. the whole shabang.

By now i'm just going to blatantly ask you (to prevent us from debating different definitions of the word):
How do you define the word intrinsic in the context of valuing?

How do you define it?

[painlord2k]

Intrinsic value: What the money stuff is useful for to you directly
Exchange value: The added value the money stuff has because it can be exchanged for useful things.

Everbody knows the value of a unit of money. Even if you don't know the offer price of all things at a certain time, you have an idea. If you go into a shop and look at the price of something interesting to you, you have some idea of what a good price is. Hence you have an idea of the value of money.

What the regression theorem tries to explain how this value came into being. Why can you buy something at all with a hundred dollar note, even if the seller can not do anything with the piece of paper itself? The first answer is yesterdays prices. But then what was the basis for yesterdays value? For every answer there will be a new question - what about the day before that? The answer, from the regression theorem, is that it is yesterdays value every day, until you go back to the day when there was no extra exchange value, only intrinsic value.

The dollar bill has this connection to previous days value all the way back. Bitcoin has not this connection, because there was in the beginning no link to the dollar. The vision of bitcoin as a money system does not count, because there was no way to connect the value of one bitcoin to an amount of dollars. This is the problem under discussion. Now it is evident, but there was a time where it was not possible to say what the value was.

Intrinsic value: What the money stuff is useful for to you directly (say gold?)

This is Direct Use: what gold is useful for direct use/consumption? What need or want is satisfied by one once of gold?
But there is no intrinsic value, because the first ounce of gold will satisfy a more important need than the second ounce of gold, and so on. So the ounces of gold have not the same value for direct use. So they have not an intrinsic value.

No, gold have an expected purchasing power the day after it is acquired to be used as money because it had an exchange power the day before when it was bartered with some other stuff for direct use.

E.G.
Gold was exchanged the day before for apples. Who acquired the apples wanted to use the apple (eat them) and who acquired the gold wanted to make a ring for himself.

I suggest people to read Rothbard, "Man, Economy and State with Power and Market". It is available in PDF for free online at the Mises.org.
The first chapters deal with this stuff. It is not difficult to understand.

[xxjs]

I suggest people to read Rothbard, "Man, Economy and State with Power and Market". It is available in PDF for free online at the Mises.org.
The first chapters deal with this stuff. It is not difficult to understand.

I second that. The book is a writeup of Austrian economy, but also discusses mainstream economy and refutes some of it elegantly.

[notme]

Randomly select: You can find randomness in bitcoins, but all of it comes eventually from the randomness generator in your computer, so it would be even easier to just grab an octet from /dev/urandom. The blockchain is novel, and the invention itself is valuable and other useful systems could be built on the same idea. Still, it hardly is intrinsic value to a bitcoin.

It's a bit off topic, and I agree with the on topic points in your reply, but I just wanted to clarify what I meant:
With the blockchain you can agree use a future block as the random source with a published method of determining the "winner" or whatever you are using it for.  When the block comes along, the operator can pay out the winner and everybody can verify that they did the right thing.

This is an intrinsic value of the blockchain that does not exist in any other form (other than altchains), but I will concede that it the value of Bitcoin, not a bitcoin.

Bitcoin, the network adds lots of value not only to bitcoin the currency, but for other uses as well.

[mobodick]

Its intrinsic value it how much it is worth to you without the wow environment.

Wrong.

That wow character doesn't exist by itself. It only exists when "alive" within the wow game with all it's properties.

Same goes for bitcoins, there's no such thing as just bitcoins. Bitcoins only exist within the whole package, the blockchain, the peer to peer network, the mining, ect.. the whole shabang.

By now i'm just going to blatantly ask you (to prevent us from debating different definitions of the word):
How do you define the word intrinsic in the context of valuing?

How do you define it?

I asked first but anyway.
I define it as the value you assign to something when you can only trade it for nothing.
It is the value something is assigned to when not having its price modulated by trade.

[mobodick]

This is Direct Use: what gold is useful for direct use/consumption? What need or want is satisfied by one once of gold?
But there is no intrinsic value, because the first ounce of gold will satisfy a more important need than the second ounce of gold, and so on. So the ounces of gold have not the same value for direct use. So they have not an intrinsic value.

Gold is special in this respect.
Gold is scarce (used to be a lot more scarce than now).
That, combined with it being shiny means you get social status from owning it.
This is a 'need' that is hard to satisfy.

[hazek]

Its intrinsic value it how much it is worth to you without the wow environment.

Wrong.

That wow character doesn't exist by itself. It only exists when "alive" within the wow game with all it's properties.

Same goes for bitcoins, there's no such thing as just bitcoins. Bitcoins only exist within the whole package, the blockchain, the peer to peer network, the mining, ect.. the whole shabang.

By now i'm just going to blatantly ask you (to prevent us from debating different definitions of the word):
How do you define the word intrinsic in the context of valuing?

How do you define it?

I asked first but anyway.
I define it as the value you assign to something when you can only trade it for nothing.
It is the value something is assigned to when not having its price modulated by trade.

Ok, and how does mining bitcoins when only a small group of programmers ran Bitcoin back in 2009 and 2010 not fit that definition? They weren't trading those bitcoins for anything and yet they were actively spending labor to acquire them. Are you going to tell me they didn't see some sort of value in them even though they couldn't trade them for nothing?

[mobodick]

Its intrinsic value it how much it is worth to you without the wow environment.

Wrong.

That wow character doesn't exist by itself. It only exists when "alive" within the wow game with all it's properties.

Same goes for bitcoins, there's no such thing as just bitcoins. Bitcoins only exist within the whole package, the blockchain, the peer to peer network, the mining, ect.. the whole shabang.

By now i'm just going to blatantly ask you (to prevent us from debating different definitions of the word):
How do you define the word intrinsic in the context of valuing?

How do you define it?

I asked first but anyway.
I define it as the value you assign to something when you can only trade it for nothing.
It is the value something is assigned to when not having its price modulated by trade.

Ok, and how does mining bitcoins when only a small group of programmers ran Bitcoin back in 2009 and 2010 not fit that definition? They weren't trading those bitcoins for anything and yet they were actively spending labor to acquire them. Are you going to tell me they didn't see some sort of value in them even though they couldn't trade them for nothing?

How do you define Intrinsic in an economic context?

[mobodick]

Its intrinsic value it how much it is worth to you without the wow environment.

Wrong.

That wow character doesn't exist by itself. It only exists when "alive" within the wow game with all it's properties.

Same goes for bitcoins, there's no such thing as just bitcoins. Bitcoins only exist within the whole package, the blockchain, the peer to peer network, the mining, ect.. the whole shabang.

By now i'm just going to blatantly ask you (to prevent us from debating different definitions of the word):
How do you define the word intrinsic in the context of valuing?

How do you define it?

I asked first but anyway.
I define it as the value you assign to something when you can only trade it for nothing.
It is the value something is assigned to when not having its price modulated by trade.

Ok, and how does mining bitcoins when only a small group of programmers ran Bitcoin back in 2009 and 2010 not fit that definition? They weren't trading those bitcoins for anything and yet they were actively spending labor to acquire them. Are you going to tell me they didn't see some sort of value in them even though they couldn't trade them for nothing?

I regularily explore mathematical spaces through graphic representation.
I calculate the hell out of things and then i throw away the results without assigning value to them.

[hazek]

How do you define Intrinsic in an economic context?

For arguments sake, let's use your definition.

[hazek]

I regularily explore mathematical spaces through graphic representation.
I calculate the hell out of things and then i throw away the results without assigning value to them.

Really? So what's the point in doing that if you don't assign any value to it? Random acts of your brain?

BTW you are starting to make more and more absurd arguments about semantics and I'm starting to really lose interest discussing this with you.

[mobodick]

I regularily explore mathematical spaces through graphic representation.
I calculate the hell out of things and then i throw away the results without assigning value to them.

Really? So what's the point in doing that if you don't assign any value to it? Random acts of your brain?

BTW you are starting to make more and more absurd arguments about semantics and I'm starting to really lose interest discussing this with you.

You want to actually discuss this but you don't want to give the definition of a word you use despite me asking for it several times?

You seem to really appreciate the semantic stuff but you fail to address even the definition.

[mobodick]

How do you define Intrinsic in an economic context?

For arguments sake, let's use your definition.

How can i ever understand your standpoint if you don't want to give me a definition?

[hazek]

How do you define Intrinsic in an economic context?

For arguments sake, let's use your definition.

How can i ever understand your standpoint if you don't want to give me a definition?

But you gave yours and for argument's sake I agreed with it. What more do you want?

[mobodick]

How do you define Intrinsic in an economic context?

For arguments sake, let's use your definition.

How can i ever understand your standpoint if you don't want to give me a definition?

But you gave yours and for argument's sake I agreed with it. What more do you want?

I want to know what you were arguing.
I want this because it is not trivial to define such a word and i may be wrong.
The easiest way to get to the bottom is to mash up different viewpoints and see what survives.

[xxjs]

Please use the correct definition of intrinsic in the realm of money. You find it upthread.

[mobodick]

Please use the correct definition of intrinsic in the realm of money. You find it upthread.

I think our definitions are close.
Does the difference matter?

"Intrinsic value: What the money stuff is useful for to you directly
Exchange value: The added value the money stuff has because it can be exchanged for useful things."

But now consider bitcoin.
Bitcoin is a means of exchange.
So i am tempted to call the exchangebility of bitcoin an intrinsic feature.
But that is called exchange value, not intrinsic value.

I decided in the end that exchengeability is not part of intrinsic value because the exchangeability is based on some other intrinsic value.
Bread feeds you. That is intrinsic to bread.
The fact that you can use bread in a barter is because it has this intrinsic quality.
So far ok. This is what you said before.

But now take a system like bitcoin.
It is an information system designed to be a currency.
So you can say the currency aspect (and all its properties) are somehow intrinsic to bitcoin.

The question i have is, how do you separate the intrinsic value of bitcoin from its exchange value?

And here is another.
Let's assume you look at a recipe on your screen.
It is a recipe for beer and you value it for that.
Can you call that intrinsic value?
And to what do you assign the intrinsic value then?

Can you even assign intrinsic value to pure information and what are the implications?

[painlord2k]

Please use the correct definition of intrinsic in the realm of money. You find it upthread.

I think our definitions are close.
Does the difference matter?

"Intrinsic value: What the money stuff is useful for to you directly
Exchange value: The added value the money stuff has because it can be exchanged for useful things."

Stuff could have:
1) "Direct Use" (it is valued because I could use it to directly satisfy my needs/wants) --> The first ten fishes have direct use value because I can eat it
2) "Direct Exchange Use" (it is valued because can be exchange for something I can consume) --> The second ten fishes have direct exchange value because I could exchange them for strawberries).
3) "Indirect Exchange Use" (it is valued because I could exchange it for something I'm not interested per se but I could later exchange for something I really want) The third ten fishes have indirect exchange value because I can exchange them for gold and the I can exchange gold for eggs - the guys with eggs (are they guys?  ) don't want my fishes but want gold.

[mobodick]

Please use the correct definition of intrinsic in the realm of money. You find it upthread.

I think our definitions are close.
Does the difference matter?

"Intrinsic value: What the money stuff is useful for to you directly
Exchange value: The added value the money stuff has because it can be exchanged for useful things."

Stuff could have:
1) "Direct Use" (it is valued because I could use it to directly satisfy my needs/wants) --> The first ten fishes have direct use value because I can eat it
2) "Direct Exchange Use" (it is valued because can be exchange for something I can consume) --> The second ten fishes have direct exchange value because I could exchange them for strawberries).
3) "Indirect Exchange Use" (it is valued because I could exchange it for something I'm not interested per se but I could later exchange for something I really want) The third ten fishes have indirect exchange value because I can exchange them for gold and the I can exchange gold for eggs - the guys with eggs (are they guys?  ) don't want my fishes but want gold.

So how do you deal with situations where the direct need that is satisfied in 1) is its use in exchange in 2) like in bitcoin?
Can you separate these concepts in bitcoin?

[xxjs]

Please use the correct definition of intrinsic in the realm of money. You find it upthread.

I think our definitions are close.
Does the difference matter?

"Intrinsic value: What the money stuff is useful for to you directly
Exchange value: The added value the money stuff has because it can be exchanged for useful things."

Stuff could have:
1) "Direct Use" (it is valued because I could use it to directly satisfy my needs/wants) --> The first ten fishes have direct use value because I can eat it
2) "Direct Exchange Use" (it is valued because can be exchange for something I can consume) --> The second ten fishes have direct exchange value because I could exchange them for strawberries).
3) "Indirect Exchange Use" (it is valued because I could exchange it for something I'm not interested per se but I could later exchange for something I really want) The third ten fishes have indirect exchange value because I can exchange them for gold and the I can exchange gold for eggs - the guys with eggs (are they guys?  ) don't want my fishes but want gold.

So how do you deal with situations where the direct need that is satisfied in 1) is its use in exchange in 2) like in bitcoin?
Can you separate these concepts in bitcoin?

I think that exchange value is the only value for a bitcoin. If you can find some direct use value, it's going to be small.

Same for a dollar bill. Mostly exchange value, miniscule direct use value.

Gold has some direct use value in jewelry and electronics. Probably more exchange value.

Minimal direct use value is a plus for money, as saving doesn't harm any direct use.

[painlord2k]

Please use the correct definition of intrinsic in the realm of money. You find it upthread.

I think our definitions are close.
Does the difference matter?

"Intrinsic value: What the money stuff is useful for to you directly
Exchange value: The added value the money stuff has because it can be exchanged for useful things."

Stuff could have:
1) "Direct Use" (it is valued because I could use it to directly satisfy my needs/wants) --> The first ten fishes have direct use value because I can eat it
2) "Direct Exchange Use" (it is valued because can be exchange for something I can consume) --> The second ten fishes have direct exchange value because I could exchange them for strawberries).
3) "Indirect Exchange Use" (it is valued because I could exchange it for something I'm not interested per se but I could later exchange for something I really want) The third ten fishes have indirect exchange value because I can exchange them for gold and the I can exchange gold for eggs - the guys with eggs (are they guys?  ) don't want my fishes but want gold.

So how do you deal with situations where the direct need that is satisfied in 1) is its use in exchange in 2) like in bitcoin?
Can you separate these concepts in bitcoin?

2) No, because Direct Exchange Use is to exchange something I have with something someone have to consume it (strawberries would be eaten, an hammer would be owned and used to hammer, etc.). I exchange my fishes for strawberries because I want eat strawberries and I value the fishes I exchange for strawberries less than the strawberries I obtain in exchange (the guy selling strawberries prefer the fishes he receive over the strawberries he part).

1)A> There is no Direct Use satisfied by me if I give you a BTC and you give me a BTC in exchange. If the direct use is simply the exchange, then exchanging anything would satisfy it; the value of the things exchanged and what would be exchanged would be irrelevant.

1)B> If you only give me a BTC, this is a gift, not an exchange, and gifts could have any or no value for the giver or the receiver.

[painlord2k]

I think that exchange value is the only value for a bitcoin. If you can find some direct use value, it's going to be small.
Same for a dollar bill. Mostly exchange value, miniscule direct use value.

Gold has some direct use value in jewelry and electronics. Probably more exchange value.

Minimal direct use value is a plus for money, as saving doesn't harm any direct use.

If the direct use is small enough, for humans, it is like it is zero.
For example, the exchange value of a crumb of bread is zero, because no one would sell it or buy it, because the value is too small to care.

[Longmarch]

What _can_ you use bitcoins for, other than exchange?

The most widely known and used proof-of-work is the hashcash cost-function which is used by Bitcoin, and also some anti-spam systems and as an anti-DoS mechanism in a number of other protocols. In the context of anti-spam, a proof of work on the recipients address can be attached to the email in an email header. Legitimate senders will be able to do the work to generate the proof easily (not much work is required for a single email), but mass spam emailers will have difficulty generating the required proofs (which would require huge computational resources).

https://en.bitcoin.it/wiki/Proof_of_work

This is the "pre-existing commodity value" of Bitcoin.

[painlord2k]

What _can_ you use bitcoins for, other than exchange?

The most widely known and used proof-of-work is the hashcash cost-function which is used by Bitcoin, and also some anti-spam systems and as an anti-DoS mechanism in a number of other protocols. In the context of anti-spam, a proof of work on the recipients address can be attached to the email in an email header. Legitimate senders will be able to do the work to generate the proof easily (not much work is required for a single email), but mass spam emailers will have difficulty generating the required proofs (which would require huge computational resources).

https://en.bitcoin.it/wiki/Proof_of_work

This is the "pre-existing commodity value" of Bitcoin.

This is a cost, not a value.
But, maybe, it could be interpreted as a "direct use value".

If instead of asking "what is the direct use value of bitcoin" we ask "what is the direct use value of a Proof of Work" we could be on something.

The direct use value of a proof of work is the knowledge the work needed limit the output of the proves offered.

[Longmarch]

This is a cost, not a value.
But, maybe, it could be interpreted as a "direct use value".

If instead of asking "what is the direct use value of bitcoin" we ask "what is the direct use value of a Proof of Work" we could be on something.

The direct use value of a proof of work is the knowledge the work needed limit the output of the proves offered.

The idea is that Bitcoin is a proof-of-work token using the same protocol as Hashcash ( https://en.wikipedia.org/wiki/Hashcash ) which itself is/was a scheme for limiting spam, wherein inclusion of the Hashcash token would cost the user something (CPU time).  Individual emails would be cheap to send, but mass emails would be expensive.  Under this system, email receivers could dismiss email that included no POW tokens, and senders would thereby be required to include them. 

In other words, you would not be able to get an email through without the token... you would need them in order to send email.  (Also, most users would not find it convenient to generate these tokens on their own.  They would prefer to buy the tokens from a producer.)  This is the pre-existing commodity value of the tokens, that they are a necessity, or have a real-world utility, as tokens that legitimize email.