Does Bitcoin have intrinsic value because a user's private key can be used

[Capitalism Prevails]

for digital signatures?  Would colored coins add intrinsic value?

[DeathAndTaxes]

digital signatures?

No (or negigible).  There is no real cost to create a keypair and you can do so without bitcoin.

[Akka]

Bitcoin is a Network with ~200.000 Participants (Pure Assumption). Where you can send digital signatures (Bitcoin) instantly, unforgeable, unstoppable and at very low cost to anyone of this 200.000.

The Only measurement in this Network are Bitcoin and there is a fixed amount of them, therefore each Bitcoin can be seen as one share of this Network.

Does such a Network have value? Does therefore a share of this Network (a Bitcoin)?

[marcus_of_augustus]

Bitcoin is a Network with ~200.000 Participants (Pure Assumption). Where you can send digital signatures (Bitcoin) instantly, unforgeable, unstoppable and at very low cost to anyone of this 200.000.

The Only measurement in this Network are Bitcoin and there is a fixed amount of them, therefore each Bitcoin can be seen as one share of this Network.

Does such a Network have value? Does therefore a share of this Network (a Bitcoin)?

This ... and the blockchain as a shared asset, secured public database all have intrinsic value. The cost of production of private keys are negligible but they work for signing transactions that will be accepted on the network and into the blockchain.

You could argue that Bitcoin, the payment system (OS code, network and blockchain), provides the intrinsic value for bitcoin, the currency (private-public key pairs and non-zero blockchain ledger entries).

[dinarius]

If you're talking about individual bitcoins, they have no intrinsic value. They're not backed by anything. Nada. Nothing! And they're not backed by some notion of computer processing capacity as some people mistakenly believe. Why? Because they can't be exchanged for the CPU capacity that generated them.

They're no different in that sense from fiat money. People accept them as a currency because they have faith that everyone else will accept them. The difference is that bitcoins aren't issued by a central authority or a government that can debase the currency by printing more of it. Historically this is what politicians do - they just can't help themselves! And Bitcoin has other advantages too.

The more interesting question is about colored coins. My guess is that this side of Bitcoin could get really interesting. For those that don't know, a colored coin is one that someone agrees to exchange for a fixed amount of some commodity eg gold, oil, whatever. In other words: I'll give an ounce of gold (or whatever) to anyone who brings me back the Bitcoin with this number. This clearly rests on the trust of the person backing the colored coin but it represents an easy way to trade hard assets using something like the Bitcoin network. The more you think about that concept, the more interesting it becomes. And yes it potentially gives some bitcoins a hard intrinsic value.

[Carlton Banks]

They're no different in that sense from fiat money. People accept them as a currency because they have faith that everyone else will accept them.

(sigh) Wrong. You're forgetting that there is monetary reasoning as to why people have the faith in cryptocurrency value. There is zero monetary reasoning behind the value of fiat currency, it's an authoritarian enforcement of value. Hence the "fiat" part, translated literally as "let it be so". A more specific translation might be "it's valuable because I say so".

Bitcoin is a very well thought through digital model of a commodity value based money system. The intrinsic value comes from the monetary properties, and this is the reason that people have the faith that others accept them as an exchange medium, not because they are being forced to believe it. Therein lies the difference. Bitcoin value is a free choice, fiat value is beaten at your head like a bludgeon.

[dinarius]

(sigh) Wrong. You're forgetting that there is monetary reasoning as to why people have the faith in cryptocurrency value.

That doesn't give it intrinsic value - it's simply a reason (arguably a better reason than paper money) to have confidence in it.

Let's think about assets that have intrinsic value:
- Land or buildings can be rented out to produce an income - that gives them intrinsic value.
- Businesses own assets or produce an income from their business activities - that gives them intrinsic value.
- A loan pays interest and may be redeemed depending on the creditworthiness of the borrower - that gives it instrinsic value.

A Bitcoin has nothing that an economist would recognise as having utility. It doesn't produce an income, can't do useful work and has no purpose as a raw material. It has no intrinsic value. Fact!

Proof: If, for some reason, everyone lost faith in Bitcoin tomorrow then your Bitcoin would be worthless. If they had intrinsic value than all the Bitcoin copycat currencies would be equally valuable. The reason they're not is because people have more confidence in Bitcoin than in the alternative cryptocurrencies.

Some will object: "But I can exchange a Bitcoin for x dollars"
Yes you can. Because others accept it as a medium of exchange. In that sense it's no difference from paper money - which was my original point.

I agree that the underlying logic of Bitcoin is ingenious. And I'm a supporter of Bitcoin. But don't imbue Bitcoin with mythical properties that it doesn't have.

[Carlton Banks]

(sigh) Wrong. You're forgetting that there is monetary reasoning as to why people have the faith in cryptocurrency value.

That doesn't give it intrinsic value - it's simply a reason (arguably a better reason than paper money) to have confidence in it.

Let's think about assets that have intrinsic value:
- Land or buildings can be rented out to produce an income - that gives them intrinsic value.
- Businesses own assets or produce an income from their business activities - that gives them intrinsic value.
- A loan pays interest and may be redeemed depending on the creditworthiness of the borrower - that gives it instrinsic value.

A Bitcoin has nothing that an economist would recognise as having utility. It doesn't produce an income, can't do useful work and has no purpose as a raw material. It has no intrinsic value. Fact!

Proof: If, for some reason, everyone lost faith in Bitcoin tomorrow then your Bitcoin would be worthless. If they had intrinsic value than all the Bitcoin copycat currencies would be equally valuable. The reason they're not is because people have more confidence in Bitcoin than in the alternative cryptocurrencies.

Some will object: "But I can exchange a Bitcoin for x dollars"
Yes you can. Because others accept it as a medium of exchange. In that sense it's no difference from paper money - which was my original point.

I agree that the underlying logic of Bitcoin is ingenious. And I'm a supporter of Bitcoin. But don't imbue Bitcoin with mythical properties that it doesn't have.

(sigh) Learn about monetary theory. Gold had zero intrinsic value at the point in history when it was adopted as money, that was one good reason why it worked so well as a commodity exchange medium. Learn about monetary theory.

[dinarius]

(sigh) Learn about monetary theory. Gold had zero intrinsic value at the point in history when it was adopted as money, that was one good reason why it worked so well as a commodity exchange medium. Learn about monetary theory.

"(sigh) Learn about...." isn't a valid argument.

You haven't addressed my point, though you seem to disagree with me.

I contend that Bitcoin has no intrinsic value. What gives it instrinsic value?

[xxjs]

(sigh) Learn about monetary theory. Gold had zero intrinsic value at the point in history when it was adopted as money, that was one good reason why it worked so well as a commodity exchange medium. Learn about monetary theory.

"(sigh) Learn about...." isn't a valid argument.

You haven't addressed my point, though you seem to disagree with me.

I contend that Bitcoin has no intrinsic value. What gives it instrinsic value?

Fiat - no intrinsic value. The cost of producing them is totally irrelevant for the value.

Bitcoin - no intrinsic value. he cost of producing them is totally irrelevant for the value.

Gold - intrinsic value (beauty, easy to form, lasting, high electric conductivity, can be hammered so thin that sunlight can shine through it.

Bitcoin and fiat having no intrinsic value, is ideal. When you save bitcoins, it means that the goods that you otherwise would have bought, can be used by others. Less waste.

[xxjs]

The value of the system is something completely different. The bitcoin system can have a tremendous value for the world when implemented, due to reduced cost of handling and no need for conversion.

And any kind of money - without money all kinds of trade would be hampered, less specialization of production, less capital - back to the world that existed 5000 years ago. The value is really inexpressible.

What is the value of the legal system? The road system? The telephone system? The Internet. Impossible to say, but we think those things are really valueable.

[dinarius]

Fiat - no intrinsic value. The cost of producing them is totally irrelevant for the value.

Bitcoin - no intrinsic value. he cost of producing them is totally irrelevant for the value.

Gold - intrinsic value (beauty, easy to form, lasting, high electric conductivity, can be hammered so thin that sunlight can shine through it.

Bitcoin and fiat having no intrinsic value, is ideal. When you save bitcoins, it means that the goods that you otherwise would have bought, can be used by others. Less waste.

Agree completely. Also your points about the value of the system ie the network - which is a key strength of Bitcoin compared conventional paper money systems.

[teukon]

May I ask, what is intrinsic value?

To me, the term seems naturally oxymoronic.  How can something have value with no valuer?  Would an ounce of gold still have value should all life in the universe permanently go extinct; what would value it?

There seem to be many definitions of "intrinsic value".  I looked up a few that had at least something to do with money.

• Investopedia gives intrinsic value as: "The actual value of a company or an asset based on an underlying perception of its true value...".  This implies that gold, fiat, and bitcoin all have intrinsic value.
  
• Wikipedia gives us: "In finance, intrinsic value refers to the actual value of a company or stock determined through fundamental analysis without reference to its market value."  This implies that none of gold, fiat, and bitcoin have intrinsic value, as none of them are companies or stocks.
  

For those who use "intrinsic value" when they really care about "value after shit hits the fan" then we are clearly working on a sliding scale depending on exactly which fan is hit and by how much shit.  There are scenarios where fiat loses a lot of value but Bitcoin remains strong; other scenarios where fiat and bitcoin both collapse completely but gold retains its value; and still other scenarios where even gold becomes as worthless as rock and food/ammunition become the bedrock of commerce (or what remains of commerce).  On this scale, I believe coloured coins do add "intrinsic value" to bitcoin just as any merchant offering/promising goods or services in exchange for bitcoin, but that the intrinsic value added cannot reach that of the hard assets promised.

[Itcher]

You can send messages with your adress, right? Or you can store information very secure?

Gold = material, you can make pretty things with it
Copper = you can melt it and make a wire (but you need a lot of cents of it to do so)
Paper = you can write on it, you can burn it

I think Bitcoin plays not sooo bad with its messaging.

[dinarius]

@teukon

Yes - value is a slippery concept. And the points you make about extreme scenarios are exactly right.

Broadly something has intrinsic value if it produces an income stream (see the examples I gave above) or can be used as an economic 'input' (food, energy, raw materials etc). If it does one of those things then it is likely to be 'demanded' by someone and can be valued in some reasonably objective way - although those values can fluctuate wildly depending on the circumstances. So gold's intrinsic value is probably significantly below its exchange value.

For the purposes of storing value for extreme events Bitcoin's usefulness depends heavily on the 'which shit/which fan' factor. If we're talking about all-out nuclear war, global pandemic of 'neo-Ebola' or a significant asteroid strike then Bitcoin isn't going to cut it. In fact any event that brings down the network is bad. For that reason, gold is likely to be used as a store of value for as long as humans are on the planet. Not the main store of value maybe, but 'insurance' value certainly.

[xxjs]

May I ask, what is intrinsic value?

To me, the term seems naturally oxymoronic.  How can something have value with no valuer?  Would an ounce of gold still have value should all life in the universe permanently go extinct; what would value it?

There seem to be many definitions of "intrinsic value".  I looked up a few that had at least something to do with money.

• Investopedia gives intrinsic value as: "The actual value of a company or an asset based on an underlying perception of its true value...".  This implies that gold, fiat, and bitcoin all have intrinsic value.
  
• Wikipedia gives us: "In finance, intrinsic value refers to the actual value of a company or stock determined through fundamental analysis without reference to its market value."  This implies that none of gold, fiat, and bitcoin have intrinsic value, as none of them are companies or stocks.
  

For those who use "intrinsic value" when they really care about "value after shit hits the fan" then we are clearly working on a sliding scale depending on exactly which fan is hit and by how much shit.  There are scenarios where fiat loses a lot of value but Bitcoin remains strong; other scenarios where fiat and bitcoin both collapse completely but gold retains its value; and still other scenarios where even gold becomes as worthless as rock and food/ammunition become the bedrock of commerce (or what remains of commerce).  On this scale, I believe coloured coins do add "intrinsic value" to bitcoin just as any merchant offering/promising goods or services in exchange for bitcoin, but that the intrinsic value added cannot reach that of the hard assets promised.

In general language, intrinsic means the essential, or what is inside. I agree, this can mean a lot of things. When we speak about money, it has a specific meaning, although I was not able to find a proper citation from the old heroes. If you look, I think you will find a definition in Mises' or Rothbards writings.

The general idea is that the money, being the most sellable goods among the traders, aquires an additional value called exchange value. The additional value comes from the money being able to facilitate indirect exchange. Imagine that one day, you could not sell you money (you could not buy anything with it). What could you use them for? That is the intrinsic value. Basically, things on the market all have value, but some things are the most sellable, and are therefore used in indirect exchange, get additional value because of that, and we call it money.

What is certain, is that the intrinsic value is just as subjective as other things. There is nothing objective about it. The intrinsic value is the subjective use value.

tl;dr So money has two value components, intrinsic value and exchange value.

[Carlton Banks]

(sigh) Learn about monetary theory. Gold had zero intrinsic value at the point in history when it was adopted as money, that was one good reason why it worked so well as a commodity exchange medium. Learn about monetary theory.

"(sigh) Learn about...." isn't a valid argument.

You haven't addressed my point, though you seem to disagree with me.

I contend that Bitcoin has no intrinsic value. What gives it instrinsic value?

You cannot separate the system from the units, and yet you seem to be referencing Bitcoin units and the Bitcoin system separately as and when it suits your argument. It's super subtle trolling, and I commend you for it. I don't expect you to have the good grace to commend my awareness of your manipulation; trolls never do (and indeed never should, it's doing it wrong) 

[teukon]

Thanks guys for the thorough replies.

When the USD was on the gold standard, did it have intrinsic value?

[Carlton Banks]

Thanks guys for the thorough replies.

When the USD was on the gold standard, did it have intrinsic value?

Theoretically, yes, due to the direct redeemability. In practice, when the French state, amongst others, began to redeem increasingly more of their gold holdings from the US, Nixon ended up all but admitting that the system couldn't take it. I'm not sure whether there was something that Nixon knew that everyone else didn't, but the facts as stated at the time were that a combination of the gold price trend, the dollar debasement trend and the redemption of gold trend couldn't be sustained, and that meant abandoning the gold standard.

[xxjs]

Thanks guys for the thorough replies.

When the USD was on the gold standard, did it have intrinsic value?

When some currency is redeemable and fully backed by gold, it is theorethically the same as gold. But the question is always, is it really fully backed or is there some scam going on in the dark, and, will it be redeemable also in the future? This means that it is either the same as gold, or less, depending on the trust of the users of its redeemability and backing. Its use value is therefore something between gold's intrinsic value and nothing.