Why Does Bitcoin Have Value?

[o_e_l_e_o]

If you adopt an energy coin that always equal to 1KWH to measure value, then things will be priced like 1 ENE, 100 ENE, etc.

Impossible to quantify. Let's take a car for example. How can anyone possibly calculate accurately the energy expenditure required to take that from design to being driven out the showroom? The energy output of the engineers who design it? What about the energy required for the computers they design it on? What about the raw materials of those computers? What about the machinery used to mine those raw materials? What is the lifespan of that computer, and so what percentage of the energy cost can be attributed to this car? Already we are in an unsolvable situation and we haven't even reached the drawing board yet.

The best we can do is a subjective estimate of the value of each individual component, process, material, person, etc., which is exactly what USD does. An objective measurement is impossible.

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[royalfestus]

It is a simple yet not easy question to answer: why does bitcoin have value?

The answer, we believe is summarized in this video: https://www.youtube.com/watch?v=Vv2-6KDlZSE

Bitcoin has value because it has both scarcity and utility. It is a limited and useful resource. It is important to note that something must be BOTH in order to command a market value, NOT either.

It doesn't sound right to me anyway. Bitcoin has value because people put it in it because people trade it at certain prices. I don't think it has an inherent value, perhaps just a bit of it that comes from what's needed to generate BTC (electricity, equipment, maintenance), but that's not how we measure the value of money these days anyway. You're talking about scarcity I'm sure there are many scarce things on the planet nobody cares about. As for utility, it's kind of dubious because you can't really do anything with Bitcoin apart from generating it and making transactions... I mean, in terms of utility something like animal skin which used to be money about a thousand years ago had way more utility. But in terms of being money Bitcoin is kind of useful, I agree with that.

I think you might need to look at it as a currency. Dollar gain value, has utility and very scarce, which is an essential feature of money as legal tender. You might need to help yourself with this simple term to stop expecting and comparing the utility of animal skin to money. Animal skin can be consumed with no other form of exchange. Except for destruction of money it will continue to exchange for anything, this is the utility we are talking about, that is the main purpose of money. Money is scarce and not available to everyone that why some are poor and some are rich. Only a rich man can understand this concept and that why they are good managers of money, poor dont know money is scarce they just suffer from it. Dont get this complicated please

[tbterryboy]

Yes you’re right about that, Bitcoins value comes from the utility and scarcity, but not when there are no people who are making use of it, so the community are like the core that’s pushing this thing. From the start Bitcoin was not worth anything as what it is now, but as time goes on and more and more people kept recognizing and adopting it, that’s when the value started to increase and it reached a high price.

Utility is part of it as it was what attracted people to be making use of it. I’m even looking forward to more adoption, though I do wonder how miners will make profit when all the coins are mined (well now is not the right time to think of that, since the time is still far).

[johnyj]

Of course that is also a personal thing, it would be opposite for vegetarian person, that feeling is subjective.

Yes, it's an oversimplified example, but your point only seems to reinforce that valuation is subjective -- based on supply and demand, not the cost of production.

Yes, that's why using supply and demand model is too abstract and flexible, it does not give you any scientific measure about the value of the object.

Of course it's not scientific. No economic model is scientific -- there are too many variables to consider, none of which can be isolated and tested in an empirical way. It would be nice if we could fit things into scientific models like a labor theory or cost-based theory of value, but we can't. Market pricing simply is not predictable, which is why we just shrug and say "supply and demand."

So I think in this case, an objective measure will be the energy input (e.g. cost) required to make the food. Using energy as unit of account will make the valuation more objective, since no amount of fiat money printing can change the energy input of making a beef filet, thus its value (measured by energy content) is not affect by the supply and demand of fiat money

Is that a valuable metric, if it doesn't line up with actual market prices?

What is market price if there is no fiat money like USD or EUR? And now FED has decided to print unlimited fiat money, what that market price reflect is the supply and demand of fiat money, not the actual goods. It is relatively easy to understand, if you don't do anything to a product, its value should be relatively stable over night, however, FED can change anything's market price by 50% over night, given their unlimited money supply ability

Those economy books that I read 20 years ago, I slowly realized that all those books are just like bible, just strengthen people's belief on fiat money, unconsiously. Since if you believe supply and demand theory, you will need a tangeble unit of account for value, then fiat money automatically fit into that slot and you get skrewed by supply and demand of fiat money forever

[johnyj]

If you adopt an energy coin that always equal to 1KWH to measure value, then things will be priced like 1 ENE, 100 ENE, etc.

Impossible to quantify. Let's take a car for example. How can anyone possibly calculate accurately the energy expenditure required to take that from design to being driven out the showroom? The energy output of the engineers who design it? What about the energy required for the computers they design it on? What about the raw materials of those computers? What about the machinery used to mine those raw materials? What is the lifespan of that computer, and so what percentage of the energy cost can be attributed to this car? Already we are in an unsolvable situation and we haven't even reached the drawing board yet.

The best we can do is a subjective estimate of the value of each individual component, process, material, person, etc., which is exactly what USD does. An objective measurement is impossible.

All the valuation is done by energy input or cost, in short term, fiat money can be used to estimate the value of each component, since they are inter-exchangeable to same amount of energy anytime. For example, if 1 USD can buy you 10 KWH on energy market yesterday, it will be roughly the same today

However, in the long run, and especially during some extreme situation like we are having now. The exchange rate is no longer stable. 40 USD can buy one barrel of oil weeks ago, and now 2 barrel of oil, maybe next week it can buy you only 1 barrel of oil again due to unlimited QE started

Let's take another example, suppose that 1 million Zimbabwe dollar can buy you one barrel of oil yesterday, and now it can buy you 2 barrel of oil today, is it Zimbabwe dollar value doubled or the oil value decreased? Most possibly you will consider Zimbabwe dollar value increased: If you don't have any idea about fiat money's value, then energy would be a much more objective measure of value

Value is driven by supply and demand, but price is driven by supply and demand of fiat money

Just saw this news that reflected how absurd today's fiat money system is:
https://www.commondreams.org/news/2020/03/21/two-1-trillion-coins-rashida-tlaib-proposal-calls-us-treasury-fund-coronavirus

[o_e_l_e_o]

All the valuation is done by energy input or cost

That's my point. It is utterly impossible to accurately and objectively place a value on something in terms of its energy cost, which means the value has to be a subjective estimate, which means it is no different to using fiat at present.

For example, if 1 USD can buy you 10 KWH on energy market yesterday, it will be roughly the same today

But again, not all KWhs are the same. 10 KWh of energy as grid electricity, as batteries, as hydrogen fuel cells, as oil, as gas, as petroleum, all have vastly different values, never mind trying to compare things like potential energy to chemical energy. Any system will have to be subjective, which is exactly what fiat does.

Just saw this news that reflected how absurd today's fiat money system is:
https://www.commondreams.org/news/2020/03/21/two-1-trillion-coins-rashida-tlaib-proposal-calls-us-treasury-fund-coronavirus

You don't have to tell me how ridiculous the fiat system is, but the system you are proposing doesn't fix it.

[squatter]

Is that a valuable metric, if it doesn't line up with actual market prices?

What is market price if there is no fiat money like USD or EUR? And now FED has decided to print unlimited fiat money, what that market price reflect is the supply and demand of fiat money, not the actual goods. It is relatively easy to understand, if you don't do anything to a product, its value should be relatively stable over night, however, FED can change anything's market price by 50% over night, given their unlimited money supply ability

Those economy books that I read 20 years ago, I slowly realized that all those books are just like bible, just strengthen people's belief on fiat money, unconsiously. Since if you believe supply and demand theory, you will need a tangeble unit of account for value, then fiat money automatically fit into that slot and you get skrewed by supply and demand of fiat money forever

It's not so much that I believe in supply and demand theory. It's that we don't have an objective measure for value.

It's a factual observation that people socially decide on a unit of account for value. Currently, fiat money fits that role. If inflation of the money supply is too extreme, and high enough price inflation or hyperinflation results, people will drop fiat money for something that more reliably holds value.

If price inflation stays low enough, then people will ignore the problem. It reminds me of the boiling frog analogy. People will continue believing in fiat money until something drastic happens.

[so98nn]

Or maybe Satoshi made it with the thought of having value!

As you described in your post regarding its networking ability and transferring of data (well digital payment info) it means people are actually buying these assets for real with fiat on one end and converting them into cryptographic form on the blockchain.

This is it I guess, it's simplest explanation for it.

~HOWEVER~

I do have another thought, you guys might wanna comment on the same.

Well over the period we have overlooked bitcoin as real payment system. Rather, we have looked at it as way of earning money, trading asset, or method to store our assets.

May be this has caused crypto world to turn into investment center. Now, that investment which is made over the time has given it tremendous value (demand and supply) and thus we experience the change in it everyday.

[FanatMonet]

Bitcoin is so much old coin and this coin will change the life of the peoples whihc will invest in it at the start and now they are billionaire, So many peoples will invest their money and they just wait for the bull and also almost peoples will deal i the Bitcoin than the other ALT coins and they trust on just the Bitcoin in the crypto market.

At current cost, in order to have a billion dollars in bitcoins, you need to have almost 154,000 BTC. I strongly doubt that there are many people who possess such amounts. I would venture to suggest that there are no more than 5, well, maybe even 10, but no more.

[johnyj]

All the valuation is done by energy input or cost

That's my point. It is utterly impossible to accurately and objectively place a value on something in terms of its energy cost, which means the value has to be a subjective estimate, which means it is no different to using fiat at present.

It's a very big difference that you use something that can not be created out of thin air at will. Gold, petroleum, energy, they are all much more objective, and energy being the most precise one

If you insist on using fiat, then why using USD instead of Zimbabwe dollar? IMO, it is just US banks are much better at manipulate KPI, so that anything in KPI does not get their USD injection

[johnyj]

It's not so much that I believe in supply and demand theory. It's that we don't have an objective measure for value.

It's a factual observation that people socially decide on a unit of account for value. Currently, fiat money fits that role. If inflation of the money supply is too extreme, and high enough price inflation or hyperinflation results, people will drop fiat money for something that more reliably holds value.

If price inflation stays low enough, then people will ignore the problem. It reminds me of the boiling frog analogy. People will continue believing in fiat money until something drastic happens.

That is why I promote to move away from using fiat money as an objective measure of value. In old time people use gold, but I think in modern time people can use KWH.

A good example is bitcoin, you could judge its value buy the power used to mine it. The power used to produce those ASIC chips might be bit difficult to calculate, but for majority of the chips that is no longer profitable, the power is converted directly to coins. There is a reason that people prefer to exchange energy to bitcoin, since that does not need KYC, you get original coin without tx history, and the energy can be from anywhere. In this case energy has worked more like a world wide fiat money

[o_e_l_e_o]

Gold, petroleum, energy, they are all much more objective, and energy being the most precise one

Energy is the least precise one. A kilogram of gold is worth more or less the same regardless of where it is, or if it is flat or brick shaped, or if it is stored as 10x 100g bars. Conversely, a KWh of energy stored in a hydrogen fuel cell is worth a vastly different amount to a KWh of energy stored in broccoli. They are not comparable.

A good example is bitcoin, you could judge its value buy the power used to mine it.

You keep repeating this but it simply isn't true. If it were true, then price would follow the difficulty or the hashrate, which it doesn't. When bitcoin was $20k, the hashrate was 15 EH/s. When bitcoin fell 85% to $3k, the hashrate more than doubled to 40 EH/s. More energy was being used to generate less valuable bitcoin.

[fudster]

The community adds value to the currency like BTC. Besides BTC is in the market where we all contributes as to how much bitcoin's value is when we participate in bidding. The intrinsic value of a coin is base on the market.  But what makes BTC better than those coins that also needs resources for mining is that BTC is accepted by huge pool of companies and merchants making it easy to liquidate.

[Reid]

I think it has a value because people understand it, we can see how the engine was made and since it is a fair deal for all then people decide it has a value. The value is variable because is based on a market, but what we know is the value will never be zero.

I don't think so. I'm pretty sure that people who actually understand Bitcoin is only a small minority. All they need to know is that Bitcoin is decentralized, trust-less, unconfiscatable, and has a hard limit. I think knowing those characteristics alone will be enough for the typical non tech-savvy person to know that it's worth something.

I think this is just enough reasoning for the greater percentage of people out there and one of them is me.
I am not that tech savvy guy, I just have little knowledge about computers and smart phones. But, when it comes to mining, development of bitcoin and other stuff, they are all like coded message which is difficult to understand. 

The thing though is you don't have to be that guy. You don't also need to go deep into knowing bitcoin like your bestfriend.
I have asked a lot of questions here like LN, SegWit and a lot more and thank God I was answered in a shallow sentenced manner. 
Somehow I understand the basics so I will stick with that and just update myself whenever something new pops out.

[johnyj]

Gold, petroleum, energy, they are all much more objective, and energy being the most precise one

Energy is the least precise one. A kilogram of gold is worth more or less the same regardless of where it is, or if it is flat or brick shaped, or if it is stored as 10x 100g bars. Conversely, a KWh of energy stored in a hydrogen fuel cell is worth a vastly different amount to a KWh of energy stored in broccoli. They are not comparable.

A good example is bitcoin, you could judge its value buy the power used to mine it.

You keep repeating this but it simply isn't true. If it were true, then price would follow the difficulty or the hashrate, which it doesn't. When bitcoin was $20k, the hashrate was 15 EH/s. When bitcoin fell 85% to $3k, the hashrate more than doubled to 40 EH/s. More energy was being used to generate less valuable bitcoin.

In my model, more energy input means more value, so it is just USD value suddenly get pumped due to lots of demand but lack of supply. But this is short term market shock and USD supply is unlimited based on FED. Supply and demand theory says that if something's supply is unlimited, it should have zero in value, why not apply it to USD?

[o_e_l_e_o]

But this is short term market shock and USD supply is unlimited based on FED. Supply and demand theory says that if something's supply is unlimited, it should have zero in value, why not apply it to USD?

I am not disagreeing with you on this part. I also think USD is turning in to a joke. Having said that, the supply isn't unlimited per se. There is a still finite amount of USD in circulation, so the supply does have a limit when we look at a snapshot. The worrying thing is looking to the future, with the Fed committing to printing however much money is required. The supply won't actually be "unlimited", as the Fed will stop somewhere, but the supply will be heavily inflated and the value of USD will be heavily diluted. What I am disagreeing with you about is that your proposed energy-based money would be anything other than completely subjective, as not only is energy not a constant value (as I explained in my last post - 1 KWh of energy is worth vastly different amounts depending on the state or form it is in), but there is no objective way to accurately measure the energy required to create a product.

Supply and demand is what gives a product or a currency value, and it is no different with bitcoin. Bitcoin's fixed cap, however, overcomes the problem of USD and all fiat and makes it a superior currency.

[Krislaw]

We(the market) are the one that decides the value of what BTC will be. This is why is the volatility is high and can never be stable.
There's a time BTC was worth less than cents, it became more valuable when it started gaining recognition and big institutions started coming in.

[johnyj]

But this is short term market shock and USD supply is unlimited based on FED. Supply and demand theory says that if something's supply is unlimited, it should have zero in value, why not apply it to USD?

I am not disagreeing with you on this part. I also think USD is turning in to a joke. Having said that, the supply isn't unlimited per se. There is a still finite amount of USD in circulation, so the supply does have a limit when we look at a snapshot. The worrying thing is looking to the future, with the Fed committing to printing however much money is required. The supply won't actually be "unlimited", as the Fed will stop somewhere, but the supply will be heavily inflated and the value of USD will be heavily diluted. What I am disagreeing with you about is that your proposed energy-based money would be anything other than completely subjective, as not only is energy not a constant value (as I explained in my last post - 1 KWh of energy is worth vastly different amounts depending on the state or form it is in), but there is no objective way to accurately measure the energy required to create a product.

Supply and demand is what gives a product or a currency value, and it is no different with bitcoin. Bitcoin's fixed cap, however, overcomes the problem of USD and all fiat and makes it a superior currency.

The problem with USD is, even with unlimited supply, you don't even get a cent of those newly created USD, its only for the riches. However, most of people still live in illusion and think that USD should have stable value and can be used to measure value. It is something like religion, as long as they believe it, it works. (And that religion easily break in another country, when another government claim that USD is illegal in circulation and force people to use their fiat currency, so it is actually based on violence)

That's the reason there should be a non-violence and non-political approcah. Energy can not be created out of thin air, and there is no problem to measure the energy content in food or in oil, in the end, only the production energy input matters. Food making is achieved by absorbing energy from solar power, those energy can be regarded as free, but you still need labor and land and chemicals to realize its value, and that is the basic cost of food. All can be calculated, much easier than rocket science

So by using an energy unit, where 1 unit is 1KWH, once people have their religion established upon it, it will be rocksolid, much more than fiat currency. And over time, since the production technology improves, every product's energy cost will be less, means cheaper and cheaper products and services. In fact petroleum is already such an energy unit, with one barrel of oil, you basically can do similar amount of things using internal combustion engine, no matter what kind of job that is. I think the Petro cryptocurrency in Venezuela very closely assemble my idea, but it is also affected by oil price, which is measured by USD, so the religion of USD really twisted the world

[Ucy]

Bitcoin needs fiat and fiat determines its value. Fiat acts as a fuel to Bitcoins value. Without fiat being pumped into Bitcoin it has no practical use or value. Considering other cryptocurrencies in the market Bitcoin does not perform well as payment processor. Without its Fiat value Bitcoin won't be accepted by any vendors online or offline.

Your analysis is bookish and does hold any practical stand.

I don't think it needs fiat at all. One of the problems preventing mass adoption is hostility toward Bitcoin. If you could create an autonomous community that makes Bitcoin it main currency, Bitcoin will thrive in the community... Imagine if you have many of such communities. And If the community members prefer physical currency or cash to a virtual one, you could  replicate the Bitcoin Blockchain in physical form so that it's totally independent of virtual Bitcoin Blockchain and the internet. The community can always merge the entire transactions on the physical Bitcoin Blockchain to the virtual Blockchain whenever internet is found. But it definitely can exist without the internet as long as possible while retaining the features of its virtual form like immutablity, transparency, deflationary coin, censorship resistant, privacy/anonymity, trustless/permissionless etc

[Shasha80]

In my view that bitcoin has value because many use it, so the amount of demand for bitcoin is very high make bitcoin the higher
the value too. Especially if it can indeed make bitcoin into a global currency, it can make all people in the world scrambling to have
bitcoin, if this happens it can also make the price of bitcoin more expensive.