Valuing Bitcoin

[David M]

When I first heard about Bitcoin a couple of years ago, I struggled to price the concept.
After several discussion with various sources, I came up with this valuation.

Double Spending Problem theoretical solution: $100,000,000.
Alpha Implementation (aka Prototype): $10,000,000.
Public Beta Release: $200,000,000.
It Works: $500,000,000.

Total: $810,000,000

At 11 million BTC that equates to a price of $74 per BTC.

How would/did you value Bitcoin?

[nobbynobbynoob]

Maybe multiply by 1000+ for the "it works" part, but I broadly agree otherwise.

[David M]

Maybe multiply by 1000+ for the "it works" part.

There is one more item to value that I deliberately left out that is after the "It Works" phase.

"Acceptance" - Depending on its international integration, this could easily be a 10 digit number.

[tvbcof]

I've often felt that the value of Bitcoin has relatively little to do with Bitcoin itself (assuming it remains unbroken in various ways) and a lot to do with the trajectory of the alternatives.  Most specifically the USD.

[ECore]

I've often felt that the value of Bitcoin has relatively little to do with Bitcoin itself (assuming it remains unbroken in various ways) and a lot to do with the trajectory of the alternatives.  Most specifically the USD.

Well that's wrong because the dollar is at an all time high while bitcoin is quadrupling it's value and more.  If you were right the price of bitcoin would be going down.

[Elwar]

How much does it cost to produce a single Bitcoin. Then what is the cost of distribution and then the cost of retail.

[tvbcof]

I've often felt that the value of Bitcoin has relatively little to do with Bitcoin itself (assuming it remains unbroken in various ways) and a lot to do with the trajectory of the alternatives.  Most specifically the USD.

Well that's wrong because the dollar is at an all time high while bitcoin is quadrupling it's value and more.  If you were right the price of bitcoin would be going down.

I'm talking about a 'jackpot' win here.  Orders of magnitude over what we see today.  What we observe until now is mainly random noise since the solution is so new and the volumes so small.

edit: fix totally broken response.

[jimbobway]

David,

You seem to be valuing bitcoin as a business which could be hard to pin point since there are no real objective numbers.  I do not know how much "solving the double spending problem" is worth.  I am hypothesizing that bitcoin is better valued when treated as a commodity and that the USD value of bitcoin will have similar characteristics to valuations of metals such as silver and gold.  We have data for these existing markets and can try to correlate it with the bitcoin world in an attempt to calculate valuation, market cap, price, mined costs, etc.

[David M]

David,

You seem to be valuing bitcoin as a business which could be hard to pin point since there are no real objective numbers.  I do not know how much "solving the double spending problem" is worth.  I am hypothesizing that bitcoin is better valued when treated as a commodity and that the USD value of bitcoin will have similar characteristics to valuations of metals such as silver and gold.  We have data for these existing markets and can try to correlate it with the bitcoin world in an attempt to calculate valuation, market cap, price, mined costs, etc.

I have valued it as a business and you are right that there is no objective numbers. 

But I had to start somewhere and thought that treating it as a business was easier than as a commodity.
My reasoning was that during the bootstrap phase, calculating demand for an experimental (and unknown) commodity is problematic because it is essentially zero.

So I treated it as a sales pitch for a VC buy out/in.

Prior to this exercise, all I had was a vibe.  At least it gave me some numbers to work with,  regardless of how wrong they are.

[n8rwJeTt8TrrLKPa55eU]

This article and past ones by same author attempt to do valuation analysis based on target markets:

http://falkvinge.net/2013/03/06/the-target-value-for-bitcoin-is-not-some-50-or-100-it-is-100000-to-1000000/

[Cluster2k]

How much does it cost to produce a single Bitcoin. Then what is the cost of distribution and then the cost of retail.

With the high power prices here and a 6850 card to do the hashing, my PC would barely turn a profit at the current difficulty and value of bitcoin.  ASIC is the only way to go (hello BFL) and even then after a few weeks of product deliveries it once again becomes a race to see who can find the cheapest electricity if bitcoin's value doesn't go up.