The value problem - explained

[Erdogan]

To clarify what supply is - this is somewhat confused because we talk about the M0 supply, the 13 million coins as supply.

Supply in the sense of a market, where the supply (with demand) results in a certain price, the supply is the coins that are on offer on the market at different volume an price pairs. It is not enough to want to sell, you actually have to offer them on the market, to make them a part of the supply.

Edit: So the bitcoin supply is like the ask curves of the exchanges and all corresponding ask curves off exchanges, aggregated.

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[shawshankinmate37927]

If you study the theory behind money velocity, you will see that they try to capture the production, distribution and consumption, not financial transactions. In fact, nobody measures money velocity directly, they derive it from gross domestic product and money volume. It is just another way to express gross domestic product. It is totally irrelevant for bitcoin. You could possibly get something meaningful if you aggregated bitcoin and fiat, and excluded financial transactions. Sending bitcoin to an exchange and convert bitcoin to and from fiat, would not be transactions included in the calculation of money velocity.

That is why I made the original post. The value comes only from the willingness to hold the money, from the peoples minds. When that willingness disappears, the money dies. This can also be seen in the multiple hyperinflation episodes in the past.

Yes, this "willingness to hold the money" is also referred to as "demand". With no demand the price will drop to zero and that is what causes hyperinflation—a collapse in demand for a currency.  If no one hoards a currency it is worthless.  It is the fact that someone is willing to hoard it that gives currency value.

What?  This is wrong.

Money has value because someone can settle debts with it.  How many people are hoarding Litecoins or Dogecoins?

Nope.  If no one is willing to accumulate and hold on to a particular currency then it has no value.  Doesn't matter if debt is denominated in it that currency or not.  The IOUs become just as worthless as the currency.

[twiifm]

If you study the theory behind money velocity, you will see that they try to capture the production, distribution and consumption, not financial transactions. In fact, nobody measures money velocity directly, they derive it from gross domestic product and money volume. It is just another way to express gross domestic product. It is totally irrelevant for bitcoin. You could possibly get something meaningful if you aggregated bitcoin and fiat, and excluded financial transactions. Sending bitcoin to an exchange and convert bitcoin to and from fiat, would not be transactions included in the calculation of money velocity.

That is why I made the original post. The value comes only from the willingness to hold the money, from the peoples minds. When that willingness disappears, the money dies. This can also be seen in the multiple hyperinflation episodes in the past.

Yes, this "willingness to hold the money" is also referred to as "demand". With no demand the price will drop to zero and that is what causes hyperinflation—a collapse in demand for a currency.  If no one hoards a currency it is worthless.  It is the fact that someone is willing to hoard it that gives currency value.

What?  This is wrong.

Money has value because someone can settle debts with it.  How many people are hoarding Litecoins or Dogecoins?

Nope.  If no one is willing to accumulate and hold on to a particular currency then it has no value.  Doesn't matter if debt is denominated in it that currency or not.  The IOUs become just as worthless as the currency.

Money are essentially IOUs.  It has value because someone accepts it as settlement

If nobody accepts it then it worthless.  Has nothing to do with hoarding

[snappa4ever]

If you study the theory behind money velocity, you will see that they try to capture the production, distribution and consumption, not financial transactions. In fact, nobody measures money velocity directly, they derive it from gross domestic product and money volume. It is just another way to express gross domestic product. It is totally irrelevant for bitcoin. You could possibly get something meaningful if you aggregated bitcoin and fiat, and excluded financial transactions. Sending bitcoin to an exchange and convert bitcoin to and from fiat, would not be transactions included in the calculation of money velocity.

That is why I made the original post. The value comes only from the willingness to hold the money, from the peoples minds. When that willingness disappears, the money dies. This can also be seen in the multiple hyperinflation episodes in the past.

Yes, this "willingness to hold the money" is also referred to as "demand". With no demand the price will drop to zero and that is what causes hyperinflation—a collapse in demand for a currency.  If no one hoards a currency it is worthless.  It is the fact that someone is willing to hoard it that gives currency value.

What?  This is wrong.

Money has value because someone can settle debts with it.  How many people are hoarding Litecoins or Dogecoins?

Nope.  If no one is willing to accumulate and hold on to a particular currency then it has no value.  Doesn't matter if debt is denominated in it that currency or not.  The IOUs become just as worthless as the currency.

Money are essentially IOUs.  It has value because someone accepts it as settlement

If nobody accepts it then it worthless.  Has nothing to do with hoarding

Money is not an IOU. Money is something that other's feel is valuable. Money in the bank and bonds are IOUs as the bank/issuing company may or may not have the physical assets to back up your claims.

[jjacob]

To clarify what supply is - this is somewhat confused because we talk about the M0 supply, the 13 million coins as supply.

Supply in the sense of a market, where the supply (with demand) results in a certain price, the supply is the coins that are on offer on the market at different volume an price pairs. It is not enough to want to sell, you actually have to offer them on the market, to make them a part of the supply.

Edit: So the bitcoin supply is like the ask curves of the exchanges and all corresponding ask curves off exchanges, aggregated.

I would also add that the bitcoins which are ready to spent (in exchange for goods or services) would also form part of the supply.

[realdope]

So how could the value of btc be defiend without any fiats existing?

[Erdogan]

So how could the value of btc be defiend without any fiats existing?

Whatever it is potentially exchanged for. Gold, beer cases, candles, buck skins. This is a non-problem.

[Erdogan]

To clarify what supply is - this is somewhat confused because we talk about the M0 supply, the 13 million coins as supply.

Supply in the sense of a market, where the supply (with demand) results in a certain price, the supply is the coins that are on offer on the market at different volume an price pairs. It is not enough to want to sell, you actually have to offer them on the market, to make them a part of the supply.

Edit: So the bitcoin supply is like the ask curves of the exchanges and all corresponding ask curves off exchanges, aggregated.

I would also add that the bitcoins which are ready to spent (in exchange for goods or services) would also form part of the supply.

Correct.

[Erdogan]

Building on this basic supply and demand function, why do people want to have, or want to have less, and why do they offer the prices for buy and sell that they do?

The reason to have more, is the general saving, and the want to save in bitcoin is the understanding that it is sound money, giving higher value or at least it keeps its value over time (or at least you know that the government is not going to manipulate it).

The urge to sell, is to exchange some of your money value to consumable goods. That is the only point of saving money in the first place, to consume later. (Investments, including deposit in a bank for interest, is for making money, with the prospect of consuming more, later, and in the mean time you do not have the money, but the capital goods in some form).

So what about the reference value? Since money have no direct use value (it is never consumed), you have no individual valuation to rely on, you have only yesterdays value on the market, measured in some fiat or price of some good, plus the anticipation of future value, based on all relevant information you have access to.

[shawshankinmate37927]

Nope.  If no one is willing to accumulate and hold on to a particular currency then it has no value.  Doesn't matter if debt is denominated in it that currency or not.  The IOUs become just as worthless as the currency.

Money are essentially IOUs.  It has value because someone accepts it as settlement

If nobody accepts it then it worthless.  Has nothing to do with hoarding

Fiat currencies are essentially IOUs, but not money in general--gold and bitcoins being two examples of money that is not debt-based.  If the central banks around the world that are hoarding dollars in the form of reserves were to suddenly decide they don't want to hoard them anymore then the dollar would certainly collapse in value.  Has everything to do with hoarding.  Hyperinflation is the result of no one willing to hoard the currency.  (When I use the term "hoard" I consider it to be synonomous with "hold" or "save".)

[twiifm]

Nope.  If no one is willing to accumulate and hold on to a particular currency then it has no value.  Doesn't matter if debt is denominated in it that currency or not.  The IOUs become just as worthless as the currency.

Money are essentially IOUs.  It has value because someone accepts it as settlement

If nobody accepts it then it worthless.  Has nothing to do with hoarding

Fiat currencies are essentially IOUs, but not money in general--gold and bitcoins being two examples of money that is not debt-based.  If the central banks around the world that are hoarding dollars in the form of reserves were to suddenly decide they don't want to hoard them anymore then the dollar would certainly collapse in value.  Has everything to do with hoarding.  Hyperinflation is the result of no one willing to hoard the currency.  (When I use the term "hoard" I consider it to be synonomous with "hold" or "save".)

Umm no.  Gold isnt money anymore.  Bitcoin was only a money inside silkroad market. 

[shawshankinmate37927]

Nope.  If no one is willing to accumulate and hold on to a particular currency then it has no value.  Doesn't matter if debt is denominated in it that currency or not.  The IOUs become just as worthless as the currency.

Money are essentially IOUs.  It has value because someone accepts it as settlement

If nobody accepts it then it worthless.  Has nothing to do with hoarding

Fiat currencies are essentially IOUs, but not money in general--gold and bitcoins being two examples of money that is not debt-based.  If the central banks around the world that are hoarding dollars in the form of reserves were to suddenly decide they don't want to hoard them anymore then the dollar would certainly collapse in value.  Has everything to do with hoarding.  Hyperinflation is the result of no one willing to hoard the currency.  (When I use the term "hoard" I consider it to be synonomous with "hold" or "save".)

Umm no.  Gold isnt money anymore.  Bitcoin was only a money inside silkroad market. 

Wrong again.  Even central bankers know gold is money...that's why they hoard it.

[twiifm]

Nope.  If no one is willing to accumulate and hold on to a particular currency then it has no value.  Doesn't matter if debt is denominated in it that currency or not.  The IOUs become just as worthless as the currency.

Money are essentially IOUs.  It has value because someone accepts it as settlement

If nobody accepts it then it worthless.  Has nothing to do with hoarding

Fiat currencies are essentially IOUs, but not money in general--gold and bitcoins being two examples of money that is not debt-based.  If the central banks around the world that are hoarding dollars in the form of reserves were to suddenly decide they don't want to hoard them anymore then the dollar would certainly collapse in value.  Has everything to do with hoarding.  Hyperinflation is the result of no one willing to hoard the currency.  (When I use the term "hoard" I consider it to be synonomous with "hold" or "save".)

Umm no.  Gold isnt money anymore.  Bitcoin was only a money inside silkroad market.  

Wrong again.  Even central bankers know gold is money...that's why they hoard it.

They also hoard a greater amount of Mortgage Backed Securities and Treasuries.  Its called an asset not money

[shawshankinmate37927]

Nope.  If no one is willing to accumulate and hold on to a particular currency then it has no value.  Doesn't matter if debt is denominated in it that currency or not.  The IOUs become just as worthless as the currency.

Money are essentially IOUs.  It has value because someone accepts it as settlement

If nobody accepts it then it worthless.  Has nothing to do with hoarding

Fiat currencies are essentially IOUs, but not money in general--gold and bitcoins being two examples of money that is not debt-based.  If the central banks around the world that are hoarding dollars in the form of reserves were to suddenly decide they don't want to hoard them anymore then the dollar would certainly collapse in value.  Has everything to do with hoarding.  Hyperinflation is the result of no one willing to hoard the currency.  (When I use the term "hoard" I consider it to be synonomous with "hold" or "save".)

Umm no.  Gold isnt money anymore.  Bitcoin was only a money inside silkroad market.  

Wrong again.  Even central bankers know gold is money...that's why they hoard it.

They also hoard a greater amount of Mortgage Backed Securities and Treasuries.  Its called an asset not money

They hoard the asset-based money to offset the risk of debt-based money.

[twiifm]

Nope.  If no one is willing to accumulate and hold on to a particular currency then it has no value.  Doesn't matter if debt is denominated in it that currency or not.  The IOUs become just as worthless as the currency.

Money are essentially IOUs.  It has value because someone accepts it as settlement

If nobody accepts it then it worthless.  Has nothing to do with hoarding

Fiat currencies are essentially IOUs, but not money in general--gold and bitcoins being two examples of money that is not debt-based.  If the central banks around the world that are hoarding dollars in the form of reserves were to suddenly decide they don't want to hoard them anymore then the dollar would certainly collapse in value.  Has everything to do with hoarding.  Hyperinflation is the result of no one willing to hoard the currency.  (When I use the term "hoard" I consider it to be synonomous with "hold" or "save".)

Umm no.  Gold isnt money anymore.  Bitcoin was only a money inside silkroad market.  

Wrong again.  Even central bankers know gold is money...that's why they hoard it.

They also hoard a greater amount of Mortgage Backed Securities and Treasuries.  Its called an asset not money

They hoard the asset-based money to offset the risk of debt-based money.

What are you talking about?  All money is credit.  

The reasons other Central Banks hold USD because they can use it to settle debts in USD.  The reason USD has value because its backed by assets like gold, securities but mistly treasuries.  Treasuries are debt of USA (US Treasury)

None of this has to do with hoarding

[wasserman99]

Nope.  If no one is willing to accumulate and hold on to a particular currency then it has no value.  Doesn't matter if debt is denominated in it that currency or not.  The IOUs become just as worthless as the currency.

Money are essentially IOUs.  It has value because someone accepts it as settlement

If nobody accepts it then it worthless.  Has nothing to do with hoarding

Fiat currencies are essentially IOUs, but not money in general--gold and bitcoins being two examples of money that is not debt-based.  If the central banks around the world that are hoarding dollars in the form of reserves were to suddenly decide they don't want to hoard them anymore then the dollar would certainly collapse in value.  Has everything to do with hoarding.  Hyperinflation is the result of no one willing to hoard the currency.  (When I use the term "hoard" I consider it to be synonomous with "hold" or "save".)

Umm no.  Gold isnt money anymore.  Bitcoin was only a money inside silkroad market. 

Wrong again.  Even central bankers know gold is money...that's why they hoard it.

In order for something to be considered as money it needs to have three qualities:
1 - It needs to be a unit of account
2 - It needs to be a store of value
3 - It needs to be a medium of exchange

Gold would not meet this criteria because people will rarely deal in terms of gold, therefore it is not a medium of exchange. Governments hold gold because of it's large and stable value

[btcbug]

In order for something to be considered as money it needs to have three qualities:
1 - It needs to be a unit of account
2 - It needs to be a store of value
3 - It needs to be a medium of exchange

Gold would not meet this criteria because people will rarely deal in terms of gold, therefore it is not a medium of exchange. Governments hold gold because of it's large and stable value

Gold used to be a medium of exchange, why couldn't it be now? Part of the reason USD is a medium of exchange is because it's enforced by law.

[twiifm]

In order for something to be considered as money it needs to have three qualities:
1 - It needs to be a unit of account
2 - It needs to be a store of value
3 - It needs to be a medium of exchange

Gold would not meet this criteria because people will rarely deal in terms of gold, therefore it is not a medium of exchange. Governments hold gold because of it's large and stable value

Gold used to be a medium of exchange, why couldn't it be now? Part of the reason USD is a medium of exchange is because it's enforced by law.

Your thinking of gold coins.  Later on it became gold notes.  Banks kept gold bricks in the vault and handed out notes.  But you are right the only legal tender now is fiat.   You can still make your own currency tokens but not for paying taxes

[btcbug]

Nope.  If no one is willing to accumulate and hold on to a particular currency then it has no value.  Doesn't matter if debt is denominated in it that currency or not.  The IOUs become just as worthless as the currency.

Money are essentially IOUs.  It has value because someone accepts it as settlement

If nobody accepts it then it worthless.  Has nothing to do with hoarding

Fiat currencies are essentially IOUs, but not money in general--gold and bitcoins being two examples of money that is not debt-based.  If the central banks around the world that are hoarding dollars in the form of reserves were to suddenly decide they don't want to hoard them anymore then the dollar would certainly collapse in value.  Has everything to do with hoarding.  Hyperinflation is the result of no one willing to hoard the currency.  (When I use the term "hoard" I consider it to be synonomous with "hold" or "save".)

Umm no.  Gold isnt money anymore.  Bitcoin was only a money inside silkroad market.  

Wrong again.  Even central bankers know gold is money...that's why they hoard it.

They also hoard a greater amount of Mortgage Backed Securities and Treasuries.  Its called an asset not money

They hoard the asset-based money to offset the risk of debt-based money.

What are you talking about?  All money is credit.  

The reasons other Central Banks hold USD because they can use it to settle debts in USD.  The reason USD has value because its backed by assets like gold, securities but mistly treasuries.  Treasuries are debt of USA (US Treasury)

None of this has to do with hoarding

If somebody is holding two assets, Gold and IOU's, don't you think there is less risk in holding the Gold? IOU's are great, but not when a company defaults and you're left holding their worthless paper.

[BrianM]

The purpose here is to explain the value of bitcoin, using a normal commodity as a starting point, and deriving the value of bitcoin from that.

A precondition is agreement of the theory of demand and supply. This is basically that value comes from the considerations of people in their minds and their actions, each person has a stepped curve of value per unit, and these demand and supply curves are aggregated on the market.

Take a commodity that is produced and consumed, and is durable (so it is possible to hold), like aluminum or copper.

There are only two types of actors in this model of the market, the producers and the consumers. Both the producers and the consumers can hold, the producers after it is produced, and the consumers before it is consumed. So the producers and consumers meet on the market with their supply and demand curves, where the curves cross, trade happens, and after the initial trades, more trades occur only when the curves change. The commodity moves like this:

Production -> store -> market -> store -> consumption

Obviously, when production parameters change, the supply curve changes, and some will be sold on the market. The same goes for the other side, when the stuff is consumed , the consumers take to the market to buy more. The equilibrium price changes accordingly.

When the price is low, the producer might increase his store, this can be called reservation demand. When price is high, more will be produced. Conversely, when the price is high, consumption goes down, and the consumer might turn seller by reducing their holding.

Now to money. The special thing with money (fiat or bitcoin, gold is a bit of both, money and consumable commodity) is that money is not consumed. Think of consumption as destruction of the goods for a purpose. When you consumed a candle, it was destroyed, but you got the light that you wanted. There is no reason to consume money by destroying them, it gives you nothing, (compared to what you get when you trade them).

On the other end, production, bitcoin is not produced either, after the initial amount is created. (Fiat is special, since more is continually printed, but they don't have to be).

So what we have left is this picture (producers are not producers any more, but sellers, and consumers are not consumers any more, but buyers).

Seller -> market -> buyer.

Since a seller can not sell more when he is empty, he also has to buy, to continue to be an actor. And the buyer can not buy more than he has other goods or services (or other money types) to sell, and he doesn't want to either, because he can not consume the money. Therefore we can combine the buyer and the seller:

Seller/buyer -> market -> seller/buyer

And they have to change roles sometimes, so

Seller/buyer <-> market <-> seller/buyer.

Conclusion: The value is from the demand and supply, where demand comes from the wish to hold, and the supply comes from the wish hold less.

Thats all, folks. That is all there is to it.