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April 05, 2013, 04:11:20 AM |
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Intrinsic value implies something has value because it exists. So I don't like that term to begin with; anything can be worthless if people cease to exist, and as long as people exist, anything can have a value. Everything has intrinsic value or nothing does. With this out of the way, lets figure out what value is: what creates value? Generally speaking, if Bill wants what Jane has, Bill understands that what Jane has is of value. Jane realizes what she's got has value, and sells what she has to Bill for as much as Bill will pay, but Bill will only pay so much; Jane agrees on a price for what she's got, and voila, a market. So value is set by how much people are willing to pay for a specific thing. Ergo, because people want Bitcoin, it has value. Why people would want it is irrelevant to how much they want it; people pay lots of cash for gold and never intend to use gold in wiring, right?
With this out of the way, you're right about the volatility; it's difficult to write down a price for Bitcoin and expect that price to be roughly the same a week from then. For now, Bitcoin is measured in fiat, as fiat right now is stable. So if Bill wants to buy what Jane's got for 1 BTC, but Jane can't deliver her got that she has until a week later, they can both agree that what 1 BTC was worth in fiat when Bill proposed to buy is what he would pay a week later, if the same value went down to 1.2 BTC or .8 BTC. As Bitcoin ages, its price will find a landing spot, and finally settle down for a while. Since it's extremely young, it's going to fluctuate, and often. So the value of BTC is always weighed in fiat, and items worth 1 BTC today eventually go for .5 BTC later, on and on.
Once it stabilizes, people can safely use it without having to refer to its value in fiat. However, the problem is, it's very slow to transfer BTC (slower than handing over cash or using a debit card, but faster than wire transfer by a long shot), which is currently a huge glaring issue with using it as a payment system. OTOH, Litecoin was invented for just this reason, as it mines blocks at a much faster rate, allowing for transactions to happen a lot quicker. So maybe Bitcoin will wind up being a place to store one's wealth, similar to PMs. But it's certainly a better place to store one's wealth than with fiat and a savings account; that is, unless you don't mind the gov stepping in and having its way with your money.
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