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Author Topic: buying goods to put value into bitcoins  (Read 1133 times)
mav
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February 23, 2012, 05:11:01 AM
 #1

I am looking for an explanation about the value of bitcoin in relation to what it is used for.

If bitcoin is simply bought and sold on an exchange, it doesn't add any value to anything and, presumably, if all the bitcoins that are bought are sold again it works out to be even (ie no value is created or lost, other than fees to market operators etc).

However, if I buy my groceries with bitcoin and then consume those groceries, have the bitcoins that I used now 'absorbed' the value of those groceries (ie the bitcoin are indeed worth something)? I can't reverse the store of value in bitcoins, unlike on a market where buying and selling is almost a direct conversion of value. Does the trade of goods and services which cannot be easily 'undone' have the effect of 'storing' the value of those goods permanently in the bitcoin economy?

Is this roughly the right idea or am I missing/misunderstanding something in this basic economic concept?
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February 23, 2012, 05:48:48 AM
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Bitcoins are worth something because people would rather have bitcoins in their hands than other goods and services available to them. When you buy something with a bitcoin you value more that something than the bitcoin you are currently holding, but the seller values more that bitcoin than what he is selling to you. The value of the bitcoin is still maintained in the overall market.

The bitcoin miners are the first to "inject" value into the bitcoins they mine because it took them a lot of effort to obtain them so they don't just sell at any price.
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February 23, 2012, 05:50:48 AM
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Compare it to dollar bills.  Why are they worth something?  Because everyone agrees they're worth something.  Right now the market considers them worth about 0.017 grams of gold or one side of fries, but there's nothing about the paper that makes it worth that other than its limited supply and the amount of market demand for that paper.

The same thing is true of BTC: by themselves they're not worth anything until someone else wants to use them to buy a hamburger.  Then they're willing to pay you something to get some BTC to buy the hamburger.

By making your purchases in BTC you create more demand for BTC which causes a small increase in the stored value of all BTC.  Nothing is absorbed into coins just because you used them.

Prior demand does not necessarily create future demand.  If you stop making purchases in BTC the global stored value decreases a little because of the reduced demand.

      War is God's way of teaching Americans geography.  --Ambrose Bierce
Bitcoin is the Devil's way of teaching geeks economics.  --Revalin 165YUuQUWhBz3d27iXKxRiazQnjEtJNG9g
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