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Whenever somebody brings up the intrinsic value of bitcoin vs something else, like gold, I ask them - what's the intrinsic value of gold, give me a dollar figure. It's like seeing deer in the headlights, they never thought of that, they just keep repeating that talking point.

Bitcoin's value is not in its growing price (it's nice, I admit), but in the fact that it solves many monetary problems - nearly free nearly instant transfers, extremely secure, global acceptance, non-reversible, not centralized. I admit it has its issues, but many will go away as it gains more popularity and stabilizes.

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Your argument about intrinsic value is flawed because you assume that intrinsic value means an intrinsic price in dollars. You could rephrase your question to apply to basically anything and you'll get the same blank stare because it isn't a meaningful question. What is the intrinsic value of a loaf of bread, or a gallon of water, or a gallon of gas, in dollars? Do these things have no intrinsic value just because they don't have an intrinsic price?

what's the definition of 'intrinsic'? I think bitcoins have an 'intrinsic' value, it's the trust model that's built into their design, the verifiability of the blockchain.

I don't know if economists would agree, but I'd say that the intrinsic value of a thing is the value that exists in the absence of other people's desire for that thing. A loaf of bread has intrinsic value for its nourishment and ability to sustain life. These properties would be present even if no other human desired the loaf of bread. Similarly, gasoline has chemical energy which can effect work, and this would still be true if every other human disappeared. Gold has useful properties that make it well-suited for a number of industrial applications, wholly apart from it's attractiveness or usefulness as a store of wealth.

On the other hand, Bitcoin has no "intrinsic" value by this definition. Its value is wholly derived from other people's interest and belief. If other people stopped using Bitcoin, any and all Bitcoins you hold would be instantly valueless. There is no meaningful trust, no useful verifiability, in the absence of others' continued desire for Bitcoins.

Under this definition, I can see no "intrinsic" value for the US dollar or any other fiat currency, either. They all derive their value from others' continued use. If everyone else stopped using USD tomorrow, your bank account contents would be worthless.

The real question is whether Bitcoin is like the dollar, in that it has no intrinsic value but may nonetheless sustain practical value long-term, or if it's like the Tulip, in that it has impressive prices but no long-term practical value.

Similarly, gasoline has chemical energy which can effect work, and this would still be true if every other human disappeared.

But those properties have no "value" without humans to extract its "value" by using it, and/or desiring it. The point being, that there is no objective standard of "value" and that concept is hoplessly entangled with human desires and needs. For example, you could make the argument that there is "intrinsic value" in whale oil, but it doesn't matter because we can extract it from the ground in a cheaper fashion (that's arguably more ethical, too). The market for whale oil - outside of a very rare few corner cases that are more than taken care of by the strategic sperm oil reserve - is effectively zero.

I think you are mixing several different things here. The size of the market for a thing does not define its intrinsic value under my definition. In fact the value assigned by the market is the opposite of intrinsic value, and my definition explicitly addressed this. The fact that whale oil has a very limited market and more efficient alternatives does not mean that it has no intrinsic value.

As for value being tied to human want/needs, obviously this is true. A thing can have value by its very nature as opposed to value created by a market, though. Whale oil will heat my house even if no one else is interested in buying it. That is what I call the intrinsic value.

The intrinsic value of a thing may be hard to extract without other people (e.g. Industrial uses), but this is different from saying that the value is tied solely to others' desires.

> because you assume that intrinsic value means an intrinsic price in dollars

But that's the exact argument I'm usually facing. They use this "intrinsic value" to justify the price of gold.

Okay, but tearing down the "intrinsic value" of gold does not justify any price or value for Bitcoin. Your argument is effectively that nothing has intrinsic value, which does nothing to make the price of Bitcoin appear legitimate.

Gold has intrinsic value for applications like jewelry and electronics (it being easily malleable and a very good conductor). There are many more here: http://en.wikipedia.org/wiki/Gold#Applications. These uses don't explain the price of gold fully, but they (along with its rarity) are the reason that gold has historically been considered valuable.

Bitcoin as an idea may have some sort of "value" (although it's a stretch to compare it to a physical thing like gold), but that doesn't mean this particular blockchain has value. There are only so many bits of metal in the Earth's crust, but there are infinitely many possible cryptocurrencies.

gold has historically been valuable because due to relativistic contraction you can easily assess its purity using a low-tech solution: a touchstone, and therefore there is a trust model is built in. It's also portable, so could be carried long distances over caravan.

Sound familiar?

Please read my second paragraph. The bitcoin v. gold comparison is not really valid.

I'm saying your first paragraph is not valid. If you're going to claim that the ancients valued gold because it has intrinsic value as a heat reflector in astronaut helmets or as a good conductor in electrical components, you're crazy.

Specifically,

These uses ... are the reason that gold has historically been considered valuable.

Actually it's extremely hard to assess gold's purity.

Tungsten is extremely close in the density to gold, and even major banks got fooled into buying tungsten bricks wrapped in gold.

http://www.zerohedge.com/news/2012-09-23/gold-counterfeiting...

http://www.zerohedge.com/news/2012-09-24/get-your-fake-tungs...

It's not that terribly hard. Tungsten is ferromagnetic, gold is weakly dimagnetic. If you have quite a strong magnet (like a large permanent magnet) and a fine scale, you can detect the presence of ferromagnetic materials even if present in low quantities.

The weakly dimagnetic effect of gold will exert almost no force, and what little it does will weakly repel the magnet. The ferromagnetic tungsten on the other hand will be strongly attracted to the magnet and so can be detected already in trace quantities.

You can in fact buy machines for a few thousand bucks that'll perform a barrage of non invasive physical tests on gold to verify that it's actually solid gold. Of course you can't expect banks and gold merchants to go the eye watering expense of actually getting one of those.

So it means you have to bring this kind of expensive machine with you everywhere you go if you want to use gold as means of payment.

Ridiculous.

I guess bitcoin is superior, then. But really the point is a historical one; "superior" methods of gold forgery were equally as unavailable to the ancients as "superior" methods of gold verification.

NPR's Planet Money podcast did a really cool episode a few years back called, "Why Gold?".

http://www.npr.org/blogs/money/2011/02/07/131363098/the-tues...

Only 10% of gold is used industrially.

Aluminium used to be extremely expensive and was used in jewelry, until we discovered how to mine it more efficiently. That's not an intrinsic value, that's perceived value.

"belonging to a thing by its very nature: the intrinsic value of a gold ring."

That's from dictionary.com. Gold is literally the EXAMPLE they give for intrinsic value.

@TylerE Yeah, and they would say they same about an aluminium ring when aluminium was rare.

That definition is awfully circular and wrong, don't you think?

People assign values to things based on their properties. Not because they have some magical natural number assigned to them by an invisible man in the sky.

It all comes down to "how intrinsic" you want Bitcoin to be. I would say that the intrinsic value of Bitcoin is the decentralized network that maintains a transaction log that is virtually immune from fraud due to its foundation on proof-of-work. It's true that arbitrary forks of Bitcoin can be made, so the specific value of Bitcoin is based on the size of its network. So is the size of the Bitcoin network not "intrinsic enough" for consideration?

Moreover, Bitcoin is not only replicable, but also inadequate as an actual means of transfer. If various banks got together to launch a new crypto-currency, which could actually be exchanged for real money, Bitcoin would effectively become deprecated overnight.

> what's the intrinsic value of gold

Gold is 1 out of 3 metals in the ENTIRE periodic table that posses the qualities which made it plausible for using in trade, holding value, and being a universal standard (does not normally de-compose or react, is not radioactive, solid, pliable, rare, minable by standard technique, etc). The other 2 were silver and platinum.

Gold has held its purchasing power for thousands of years.

That's its intrinsic value.

I'm pretty sure the intrinsic value of gold is less than 10% of the market value.

If the world suddenly stopped seeing gold as 'money' or a 'store of value' or whatever it would lose 90% or more of its value. Bitcoin would lose 100%. The difference is not that big.

Falling by 90% versus 100% is quite big.

One is now 0. There other is still above 0.

I disagree, bitcoin will always be useful as the best mode of transferring money, regardless of its value. And that alone gives it value. There's a reason people pay something like 5-8% to Western Union. It's a valuable service. Well, was.

Reminder to myself: short Western Union and MoneyGram stocks.

Bitcoin is worth $0.00. How is it useable for tranferring money? (Hint: It's not)

It won't be. Have you ever seen a stock drop to zero? It's always something like 0.0000123.

Great. So, if you owned all 21M bitcoins you could move $258 dollars.

> If the world suddenly stopped seeing gold as 'money' or a 'store of value' or whatever it would lose 90% or more of its value. Bitcoin would lose 100%.

For the world to suddenly stop seeing Bitcoin as 'money' or a 'store of value,' the world would have to not see any value in a non-reversible, virtually fraud-immune, decentralized, near-instant, near-free, completely electronic means of exchange. Those are the attributes of Bitcoin that give it "intrinsic" value.

Gold is rare. Gold is used for things. You can argue about the _scale_ of the value, and whether or not current market conditions truly reflect the value of an ounce of gold, but that does not remove the fact that it is an actual resource, limited in availability and has practical uses in and of itself.

Gold is not rare, it's a huge lie. I just checked, it's mined at 2,500 tons per year. That's just the discovered gold, and only on our planet. There are enormous quantities of gold in the universe. Same goes for many other things that are marketed "rare" - silver, diamonds, other gems.

You don't have a clue what you're talking about. Gold is extremely rare, making up under 1 part per billion of the earth's crust. Only 6 elements (ruthenium, palladium, rhenium, iridium, and rhodium) are rarer.

Over 1 billion tons of iron are mined each year, to put your figure in comparison.

To say that gold is not rare is not just misleading but a bald-faced lie.

It's rare per pound, but it's not limited in any real sense like bitcoin. Gold is mined to the point where 2% of it is added to the traded/stored amounts. It's pretty much guaranteed to lose value.

And then there's this coming soon:

http://en.wikipedia.org/wiki/Asteroid_mining

> Only 6 elements (ruthenium, palladium, rhenium, iridium, and rhodium) are rarer.

I think you forgot to count all the truly rare elements on the periodic table past number 90. You know, the ones that decay in hours, minutes, seconds or microsends.

Doesn't the design of Bitcoin ensure limited availability as well?

Sure, but it still has no utility on it's own. Interesting point though, because it brings up a weakness of bitcoin in general; the same weakness that got us off the gold standard in the first place.

Your bank account has no utility on its own. So what? It's still valuable.

Bitcoin is valuable because of its properties, and that's why people are willing to pay more than $1,000 for each.

Not really. You can create an infinite number of cryptocoin currencies. Look at the proliferation of them.

The industrial value of gold is a whole lot clearer than the value of bitcoin as a transaction mechanism (for one thing, there are lots of purposes where gold is the best thing you could use. It isn't at all clear if bitcoin is superior to a cheaper alternative, or an alternative that somehow better facilitates exchange with tiresome existing systems).

Really? Only 10% of gold is used for industrial purposes. It's really not as useful as copper or aluminium.

The rest 90% is purely used for hoarding, as traditionally it was thought of as rare and valuable. Now gold is mined at an industrial scale, more than 2000 tons per year. While it's sort-of rare, its quantities in the universe are enormous (and even Earth). People are finally realizing that, and that's why we see both gold and silver prices falling.

That's silly. What you really mean is that at $1200 an ounce 10% of gold is still used industrially. I guess that might stay level if the price dropped, but no it wouldn't.

@maxerickson I'm not arguing that gold isn't useful, it absolutely is. Every element in the periodic table has been used for something practical, as far as I'm aware.

I'm arguing against the "intrinsic value" bullsh*t.

I ignored all the stuff about intrinsic value.

I just pointed out that there are strong reasons to believe that gold will retain some value in the future. There is exactly no drop in replacement for gold. Drop in replacements for bitcoin are easy (not necessarily drop in replacements with so many miners, but I don't think it is clear whether that matters).

> nearly free nearly instant transfers

Average confirmation times in the last 30 days have been between 8 - 19 minutes. Hardly instant. Also, what do you think will happen when all 21 MM BTC have been mined, fees will probably start to appear too.

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