The Intrinsic Value of Technology & Bitcoin

The term intrinsic value is one that is thrown around a lot, both here and in any economic debate where currency and commodities are discussed. It is perfectly logical topic, but one that is all too often misunderstood. You hear the same rhetoric shouted everywhere, “the dollar has nothing backing it, there is no intrinsic value” or “gold has been a store of value for 6,000 years, it is intrinsically valuable”. Just searching the bitcointalk general discussion boards on this forum for “intrinsic value” nets 8 pages worth of threads. We have an intrinsic value overload.

But what exactly are we talking about here? Is this really an economic question, or is it a philosophical one masquerading as an economic debate? Perhaps we have been going about this all wrong. I’d argue that in order to address this issue, we first need to understand it properly.

So what is intrinsic value? It is the underlying worth of something essential to nature. The phrase ‘essential to nature’ is itself an entirely new philosophical debate that could rage on with no end in sight. But for my part, I believe nature at its very core does one thing, it evolves. From inorganic matter to organic single celled organisms to complex multi-cell organisms, all the way up through human beings. We evolved just the way every other animal has evolved, through survival of the fittest. Survival and reproduction, those are the defining elements.

As a species, intrinsic value is that which fundamentally improves our personal survival and/or our ability to reproduce. How do we do these things? By adapting to ever changing conditions more efficiently than our contemporaries. This is survival of the fittest. And since the dawn of mankind, the way we do this is through our use of technology.

Simply put, technology is valuable because it solves two basic problems of evolution; that of speed and scalability. Look at any technology ever developed and you will find one or both of those at the heart of the reason why. The problem of evolution is that of efficiency. He who is most efficient, who catches the food first, who makes a better weapon, who builds a better shelter, survives. The arrow enables me to catch my food (and kill my enemy) better than someone who only uses their hands. As such, an arrow has relative value. Weapons have intrinsic value, the amount of which is determined by how well said weapon compares to other weapons. The value of a specific weapon is relative (the bow and arrow is only valuable until a gun comes along), it is the CONCEPT of weapons that holds intrinsic value.

Intrinsic does not mean something you can taste or touch. Intrinsic are fundamental aspects of nature that push the bounds of evolution to new heights; that which helps us survive and reproduce more efficiently and effectively than before. Creativity is intrinsically valuable (for either its ability to help us survive by coming up with a solution to a problem, or to attract a mate), however the painting I create is only as valuable as its ability to fill that intrinsic void.

Likewise, when broken down to its most basic function, money is but technology meant to make transactions more efficient. This is the intrinsic value of the concept of currency. It enables me to swap my goods and services for others goods and services better than if I tried to barter them. Trading a cow for clothes and a bed is difficult, but selling a cow for money and then using that to buy clothes and a bed is much easier. Money as a technology solves that problem of improved speed and scalability that is at the heart of evolution (and by extension, nature). It is the concept of liquidity itself that is intrinsically valuable. A cow is not as liquid (or divisible) as a wallet full of cash, therefore a wallet full of cash has more usefulness as a means of transaction.

This is where bitcoin comes in. Bitcoin is the newest answer to the never ending question of improved speed and scalability. This is where its value comes from. A protocol that enables wealth to be transferred faster, cheaper, and more freely on a larger (and smaller) scale than the current system is itself valuable. A decentralized system of payment not subject to the red tape that encompasses the current financial system is valuable because it fills the void of potential liquidity better than anything else we currently have (if you don’t understand the significance of bitcoins ability to safely transfer funds between two parties without a counterparty or risk, then stop now and read up on that fact until it sinks in).

Bitcoin is not intrinsically valuable the same way a cow is not intrinsically valuable. If we didn’t eat cows, we’d survive and find a different food source. It’s just that cows are so damn easy and fill that food void so well that they have value for good reason (notice cows have value as a food source, not so much as a means of transaction because they don’t fill that liquidity void as well). Likewise, the bitcoin protocol has the potential to fill a giant void better than the current monetary system is doing. To enable both large transactions cheaply (I saw 28 million dollars get transferred from one wallet to another yesterday for 8 cents!) and small affordable “micro-transactions”, while also making the transfer of wealth significantly quicker (and potentially more anonymous) than the current system is all the value bitcoin needs.

Now, that is not to say we’re there yet. In fact, we’re far from it. Obviously, an important part of liquidity is having a vast array of infrastructure and services (and simplicity) in place, which bitcoin currently lacks. However, the actual bitcoin protocol lays down the foundation for such a system. It’s simply a matter of building up around it. If the bitcoin protocol is the foundation, then bitcoin the currency is the ground floor.

Value is always derived from how something advances our evolution as an individual and species and improves our efficiency (aka speed and scalability) in a given aspect of life. And the technology behind the bitcoin protocol lays the groundwork for such advancement in much the same way TCP/IP laid the groundwork for the mass spread of information and knowledge the likes of which previous mediums never could. To fail to see that value and shout from the rooftops that bitcoin “has no intrinsic value and has nothing backing it” is to not only misunderstand what it means to be valuable, but also to miss the significance behind the underlying technology of the bitcoin protocol.