Reminder, Bitcoin has intrinsic value: its proof of work

[amincd]

Originally posted in Reddit, I thought I would share this here too:

When people argue that Bitcoin has no intrinsic value, we need to correct them. As this post from a few months ago explains, Bitcoin's intrinsic value is its proof of work:

http://www.reddit.com/r/Bitcoin/comments/1cq9wg/bitcoins_intrinsic_value_is_proof_of_work/

To elaborate, what Bitcoin provides is something that is unique to cryptographic hashing functions: the ability to produce easily verifiable and absolute proof that work was done.

This may seem trivial, but it's not. If you have mined a ton of gold, there is no easy way to prove to someone with absolute certainty, that you did so. You can record a video showing a vault filled with gold, but videos can be faked. You can get your gold audited, and provide a certificate showing your holdings, but auditors can make mistakes, or be dishonest.

For these reasons, it takes a significant amount of effort for others to determine whether they can trust your claim that you have a certain amount of gold, and unless the gold is physically hauled to them and they are able to test it, they will never know with absolutely certainty if your claim is true.

With one way cryptographic hash functions, proof of work can be produced that can be digitally transmitted to other parties and automatically verified. The Bitcoin blockchain contains proof of work that cost tens if not hundreds of millions of dollars to do.

Given the amount of work that can be done in the world is limited, and the proof of work in the Bitcoin blockchain represents a significant share of this limited potential, Bitcoin is scarce (it's difficult to duplicate its qualities in a different network).

Individual Satoshis get their intrinsic value from this scarcity and their properties within the Bitcoin protocol. The protocol treats them as fungible, transferrable and numerically quantifiable, making them a natural representation of a share in the Bitcoin blockchain for people, which leads to the perception of Satoshis having the scarcity of the proof of work contained in the Bitcoin blockchain.

This, along with their transferability, makes them desirable to have for numerous applications, like as payment to bypass spam filters. Also giving Satoshis intrinsic value is their role as the token in which fees are required to be paid for having transactions included in the blockchain.

Including transactions in the Bitcoin blockchain is desirable because the protocol assures that they will not be reversed without a party producing as much proof of work as was generated for the blockchain from the time the transaction was included in the blockchain to the present, and doing it in the same amount of time, which at the moment would be very costly and therefore unlikely, and also because they are unlikely to be deleted or made inaccessible due to the Bitcoin network being global, distributed and peer-to-peer.

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[beetcoin]

yeah i think people might misunderstand what intrinsic value means.. maybe they see BTC as a nonphysical commodity/currency, and hence they mistakingly say it has "no intrinsic value."

as investopedia defines it:

1. The actual value of a company or an asset based on an underlying perception of its true value including all aspects of the business, in terms of both tangible and intangible factors. This value may or may not be the same as the current market value. Value investors use a variety of analytical techniques in order to estimate the intrinsic value of securities in hopes of finding investments where the true value of the investment exceeds its current market value.

2. For call options, this is the difference between the underlying stock's price and the strike price. For put options, it is the difference between the strike price and the underlying stock's price. In the case of both puts and calls, if the respective difference value is negative, the instrinsic value is given as zero.

its intrinsic value comes from the perception of people who invest in it, which is reflected by its buy/sell price. if it's "a good buy," then it has intrinsic value.

[No_2]

+1 Totally agree. Really refreshing to see this post.

I feel like a broken record because I've been saying to so many people. When supposed experts say Bitcoin has no intrinsic value it shows they do not understand what it is and therefore their opinions should be called into question.

Bitcoin's value is derived from proof of work because Bitcoin is the monetisation of proof of work.

[remotemass]

Also, you have to bear in mind that the intrinsic value of gold is very marginal comparing to its actual market value.

[qwertzlcoatl]

Nothing (including gold) has intrinsic value. Value is subjective, it's imputed to goods (gold bars, bitcoins, loaves of bread) in accordance with their expected serviceability in satisfying wants. Value exists in people's heads, it's not some magical essence tied to certain things in the world.

[schnuber]

I have just made a youtube video blog covering that topic. Please check it out at youtube. Just enter in the search bar :  "Bitcoin don't need intrinsic value"

[SheHadMANHands]

Nothing (including gold) has intrinsic value. Value is subjective, it's imputed to goods (gold bars, bitcoins, loaves of bread) in accordance with their expected serviceability in satisfying wants. Value exists in people's heads, it's not some magical essence tied to certain things in the world.

^ This

"Intrinsic value" is rubbish.  Before humans roamed the planet, gold had as much so-call "intrinsic value" as sand.  Value is purely subjective.

Utility, not "intrinsic value".  Bitcoin has remarkable utility.

[benjamindees]

No, no, no, no, no.

Work isn't value.  That's nonsense that has been thoroughly debunked.

Value is savings.  Economy is savings.  Bitcoin is savings.

What does Bitcoin save?  It saves the cost of transporting money across the globe.  It saves the cost of inflationary theft inherent in fiat currencies.

Bitcoin's value derives from savings, not work.  Work is the cost of using Bitcoin.

[GenTarkin]

I dont get into all the different facets of value but when someone asks me "but what makes Bitcoin valueable?"
My response is, something like: Well, aside from its market exchange rate...which is much like how PM's are traded on .. speculation etc...  Bitcoins true inherent value comes from the utility(I go into various utility aspects that Bitcoin has where money has never had in human history) and proof of history(work)(thats backed by mathmatics) that can not be changed unless the true majority(not representation of) says so.
Thats what makes Bitcoin valuable.

Its at that point that they start getting it.
I mean, its like comparing an old cannon vs a 50cal bmg aimed at a 1500yd human target ... which one is more valueable given the goal trying to be accomplished? =P

[ill_logic]

No, no, no, no, no.

Work isn't value.  That's nonsense that has been thoroughly debunked.

I think you should be linking to something about the Cost Theory of Value or Labor Theory of Value, rather than the Broken Window Fallacy.

Value is savings.  Economy is savings.  Bitcoin is savings.

What does Bitcoin save?  It saves the cost of transporting money across the globe.  It saves the cost of inflationary theft inherent in fiat currencies.

Bitcoin's value derives from savings, not work.  Work is the cost of using Bitcoin.

I'm altogether a BTC detractor, and I actually had the same initial reaction as you. But then I read more carefully and I realized that in the peculiar case of spam filtering, proving that you did useless work really *is* valuable. Presuming sending an email is valuable to you, and presuming having too many emails sent out is dis-valuable to the email service provider, being able to prove that you went through some trouble before sending out an email is enough to satisfy the email provider that you're not sending too many emails, is valuable to you.

This is an intriguing concept and it has a chance in turning the tide of my opinion. However, I think it's potentially flawed if taken in the full context of Bitcoin, as described in the first post. I'm still working it out. It may, in deed, still come down to the Cost Theory of Value in a sense, but not in an obvious way.