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Author Topic: Intrinsic worth brainstorming (or, putting a price floor on BTC)  (Read 860 times)
bshanks
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August 08, 2011, 09:39:43 PM
 #1

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

Let's find some sort of intrinsic value that BTC has (besides scarcity or BTC's usefulness as a medium of exchange). This will put a price floor under BTC.

To get things started, I thought of a few. I'll copy them here for easy reading, but please post replies to this at https://en.bitcoin.it/wiki/Intrinsic_worth_brainstorming .


=== BitX ===
See https://bitcointalk.org/index.php?topic=1790.0 . The worth of bitcoins would be the maximum of the worth of any of the services built on top of bitcoin.

Many of the following ideas are a specialization of the BitX idea.

=== Publishing ===
Bitcoin is fundamentally a global censorship-resistant memory system, similar to FreeNet. It just happens that what it is remembering is the log of Bitcoin transactions.

Information can be encoded in the transaction log, and the speed with which it can be encoded is limited by the ability to encode information into the blockchain. Encoding information into the blockchain requires BTC (or, while BTC are mineable, computing power, which has a price floor).

Publishing services could be setup which encode information into the blockchain (that is, to perpetually, globally publish, in a censorship-resistant way), and read out encoded information, for a price. Like FreeNet, for pay. This sort of service is more valuable if it is done on top of something like Bitcoin (because the network effects of Bitcoin provide stronger incorruptibility). This inherent value provides backing.

=== Marked coins ===
Because BTC is traceable, other alternative currency systems could be built on top of BTC. For example, if I had a lot of gold, and assuming that 1 BTC was worth less than an ounce of gold, then I could buy 1000 BTC and then say, "My BTC address is XYZ. Any BTC which was has passed thru this address is equivalent to a transferrable IOU for one ounce of gold from me.". Then I sell those BTC for whatever an ounce of gold is worth. This provides a standardized way to electronically transfer gold IOUs.

This would mean that those bitcoins would be backed by gold. It wouldn't mean that ALL bitcoins would be backed by gold. But, the fact that all alternative currency issuers utilizing this "marked coins" scheme on top of bitcoin first need to acquire bitcoins provides a backing for all bitcoins (the value of this backing would be much less than the value of the alternative currencies themselves, of course). In other words, bitcoin's inherent usefulness as a layer underlying other alternative currencies would be the backing.

=== Namecoin ===
https://bitcointalk.org/index.php?topic=6017.0 , https://bitcointalk.org/index.php?topic=30294.0

=== Goods and services which are ONLY buyable with BTC, for set prices ===
Mere usage of BTC as a medium of exchange isn't backing. But if some merchants sell something which (a) may ONLY be purchased with BTC (similar to "petrodollars"; a lot of oil can only be purchased with dollars), (b) are made available to sell at a set BTC price, INDEPENDENT OF THE EXCHANGE RATE OF BTC VS ANY OTHER CURRENCY, then this provides backing.

An example would be an MMORPG in which the in-game currency were Bitcoin, and in which the prices of some in-game things were set by the creator of the game without reference to BTC's current price on currency exchanges (specifically, if the price of BTC in dollars fell, the game maker would NOT drop the in-game price of items).

Something which satisfied (a) but not (b) wouldn't quite be backing, but it would be better than nothing.

=== A club which demands dues in BTC ===
Consider how the U.S. dollar is the only currency that is accepted for payment of U.S. taxes. This creates a demand for dollars to pay taxes with.

The U.S. gov allows you to transact business in some other currency, but you still have to pay a percentage of the net income generated by those transactions in dollars.

This isn't quite backing but it would be better than nothing.

----

== Alternatives to BTC which would have intrinsic worth ==
This section is for discussing things that can't be done ON TOP of BTC, but which could be done by creating something very similar to BTC.

=== pseudo-BTC that uses computational power in service of some problem ===
If there were a way for someone to purchase a large amount of pseudo-BTC and then could use them to "buy" computing power, in the form of specifying an NP-complete problem, such that solving that problem then becomes a way to encode additional transactions into the blockchain (instead of meaningless hashes), then the price of computing power would be the intrinsic worth of pseudo-BTC.
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Ten98
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August 09, 2011, 12:15:10 AM
 #2

Something is only "worth" what others are prepared to pay for it.

There is no intrinsic value to a Bitcoin, it is even more imaginary than actual money is.

Sorry but there can be no price floor.
Mr.Bitcoin
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August 09, 2011, 01:06:13 AM
 #3

The price floor is Zero. That goes for just about everything. The price floor for gold? Zero. Silver? Zero. Price is and always will be what someone else is willing to exchange for. You could try to start putting a price floor on something... say, Spam (though you should try the new turkey Spam!) and carry that as your currency. If you go to a vegetarian and tell them the price floor for your can of spam is 1 can of hairspray, they will tell you to cram. You could find some crazy dude that believes eating Spam gives him super powers, and he'll probably give you a bunch of hairspray - especially if you have created scarcity in the Spam market by destroying or acquiring all the other cans of Spam. Now you are king *%$! when it comes to Spam.

Same goes with Bitcoins. Though I think Bitcoins are less delicious than Spam (my miner thinks differently though!)
-Mr.Btc

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En Banc
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August 09, 2011, 04:35:42 PM
 #4

I agree that the price floor on BTC is probably close to zero, but I want to point out that for gold and silver it isn't reasonably zero. Gold and Silver both have extensive industrial uses.

Historically the intrinsic value of gold and silver came from its value as shiny jewelry with which to impress women, which in turn is just a fancy way of saying the 'promise of sex'.

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Mr.Bitcoin
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August 09, 2011, 04:53:18 PM
 #5

Excellent point En Banc! Gold is a decent conductor that doesn't corrode and silver is used in imaging and film a lot. Now how can we get some industrial uses for Bitcoins? What if we coated an electrode in Bitcoins - would it corrode? Or would it be a beacon of hope and 'promise of sex' ??! That's one heck of a great promise btw!
-Mr.Btc

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st4rdust
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August 09, 2011, 05:00:56 PM
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Excellent point En Banc! Gold is a decent conductor that doesn't corrode and silver is used in imaging and film a lot. Now how can we get some industrial uses for Bitcoins? What if we coated an electrode in Bitcoins - would it corrode? Or would it be a beacon of hope and 'promise of sex' ??! That's one heck of a great promise btw!
-Mr.Btc

While its true that most tangible materials have some type of application in the real world, the price floor for each of them is still zero. Take gold, for example. It's true that it has many uses, but let's say tomorrow someone or some corporation introduces a new material which matches every single aspect of gold, from every physical property it has to every productive use it has, and it costs next to nothing. Nobody would want to pay anything for gold anymore, since they can get what they need from this new material which costs next to nothing. In this case, gold's price floor is effectively zero.

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hurricane
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August 09, 2011, 09:35:46 PM
 #7

Gold is only valuable because people say it is.
Mined diamonds are still valuable even though science can produce an exact replica that is impossible to tell from the real thing, which means that someone could flood the market with fake diamonds to destroy the diamond market. And DeBeers has artificially kept the value high by regulating the quantity of diamonds released to the market.
It is similar to what Bitcoin does. Bitcoins have a value because there is a limited supply of them. However, they are only valuable if people agree that they are. Someone not involved in Bitcoin would value them at zero.
I wonder whether something like food could ever have a price floor of zero, unless science figured out a way to make endless quantities?
enmaku
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August 09, 2011, 10:00:26 PM
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let's say tomorrow someone or some corporation introduces a new material which matches every single aspect of gold, from every physical property it has to every productive use it has

Such a material would, by your very definition and every law of physics I've ever heard of, have a valence configuration and nucleus identical to gold and, therefore, would BE gold. It would be more reasonable to imagine some new process by which we cheaply convert another material into gold and flood the market.

It's also noteworthy that simply matching one industrial quality isn't usually enough. Silver, for example, is a much better conductor than gold - unfortunately it also tarnishes easily which ruins its conductivity. Find a cheap and easy way to keep silver from tarnishing and you'll see store shelves flooded with silver-plated connectors very quickly (considering its cost relative to a similar quantity of gold).

Mircea Popescu
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August 09, 2011, 10:05:49 PM
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I would guess the price of bitcoins in any given week is approximately twenty dollars for each person that heard of bitcoin that week divided by twice the amt of bitcoin mined that week.
Doug Rudd
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August 09, 2011, 10:26:39 PM
 #10

Let's find some sort of intrinsic value that BTC has (besides scarcity or BTC's usefulness as a medium of exchange). This will put a price floor under BTC.

Comments:

I suppose some new service for Bitcoins could increase it's popularity, but I'm not so sure about the ideas presented here.

The main value of Bitcoin is always going to have to be its usefulness as a store of value and a medium of exchange. Otherwise the other services built on top won't have any value.

=== Publishing ===
Probably putting other things in the blockchain would lower the value of Bitcoin instead of increase it. You could have other kinds of blockchains specially made for those purposes.

=== Marked coins ===
I don't think that would work. "My BTC address is XYZ. Any BTC which was has passed thru this address is equivalent to a transferrable IOU for one ounce of gold from me." What happens after the coin is transferred to other people down the line? Those people are not going to honor your commitments.

=== Voting ===
Voting has to be anonymous. If you gave out bitcoins to every voter so they could send them to the ballot account of the candidate of their choice, somebody in theory would know who they gave the original voting coins to and know which account they ended up in. There is no such thing as a "mixer" for Bitcoin addresses if there is a record of every connection in the blockchain.

=== Goods and services which are ONLY buyable with BTC, for set prices ===
Well, if oil was only buyable for bitcoins, yes that would make bitcoins worth something. But there is no way you can do this without government interference - which we don't want.
"if the price of BTC in dollars fell, the game maker would NOT drop the in-game price of items". Then you are forcing him to go broke - which will harm more than help Bitcoin.

=== pseudo-BTC that uses computational power in service of some problem ===
What would be the advantage to this for the customer rather than just buying the computing power on the market?
Dargo
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August 09, 2011, 10:48:34 PM
 #11

Even if there were some reasonable way to value bitcoins (which I doubt), there is no reason to think that traders will respect this value as a price "floor". It is a known fact in stock trading that the dynamics of trading action can radically undervalue or overvalue a company. And even here, it isn't at all objective what the true value is. About the best one can do is to note what the P/E ratio is for a given stock relative to similar companies (a rough measure at best). You would be better off learning how to read charts and understand such things as where points of support and resistance are in the chart, or when the price action reaches oversold or overbought levels. This is not to say that fundamental analysis is useless. But for bitcoins I think the only useful fundamental analysis involves sensible talk about what needs to happen for bitcoin to increase in value, or how its value might be undermined. Basically, the more bitcoins can become useful to more people, the more perceived value they will have, and the price should rise. Essentially the reverse scenario will undermine their value. But even if this fundamental stuff remains constant, the price can still fluctuate wildly due to the sheer dynamics of trading action, which is really a psychological phenomenon. 
Ten98
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August 12, 2011, 10:48:36 AM
 #12

I wonder whether something like food could ever have a price floor of zero, unless science figured out a way to make endless quantities?

You serious? Food hasn't always come from supermarkets you know... It already has a price floor of zero. I'm eating a free strawberry from my garden right now!
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