Menu IconA vertical stack of three evenly spaced horizontal lines. Paul Krugman set off a new firestorm this weekend with a post what is the value of 1 bitcoin Bitcoin that asked a fairly simple question: What gives a bitcoin its worth? The post drew a ton of angry reaction from the Internet community and tech people for a couple of reasons. One is that this question — why is a bitcoin worth anything — is a difficult question to answer.
The other is that the post is bizarrely titled “Bitcoin Is Evil” even though the post doesn’t say that. But on the Internet, people don’t read past the headline and so, outrage! But back to the question of trying to establish an “intrinsic value” for Bitcoin. The dollar has intrinsic value because you need dollars to pay taxes in the United States. The government accepts no other currency.
So if you’re going to engage in any kind of commerce whatsoever, you need to use dollars. This creates real value for the currency. Gold has real value because it’s shiny and can be used for jewelry. Other commodities get their value from industrial purposes. If you ask Bitcoin believers why a bitcoin is worth anything at all, they will tell you about how amazing the technology is, and how it’s “programmable” and how cryptography and pseudoanonymity are so great. But none of these are very satisfying answers. For one thing, these features mainly explain why Bitcoin as a payment platform is so intriguing.
Bitcoin as an asset that will go up or down. For example Litecoin, the second-biggest player in the game, advertises that if you transact in Litecoin you get faster confirmation times and that the whole system can handle more volume than Bitcoin. So the usual arguments aren’t that compelling. Now in the Bitcoin-sphere, there’s a lot of debate about what Bitcoin is.
People go ’round and ’round in circles about whether Bitcoin is a currency or a commodity or a platform or a protocol or an equity or whatever. Must it be a stable store of value? Bitcoin into a category where it never quite fits. I think Bitcoin is a hybrid of three things with which we’re all pretty familiar: a currency, an equity, and a social network. The currency part is pretty easy to understand. Someone is offering something for sale like a bike or a month’s rent, and they might give you a quote in dollars, yen and bitcoins. Bitcoin basically acts like a currency then.