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Comment by d23 | Hacker News Reader

> Bitcoins have no intrinsic value

Neither does gold, paper money, or diamonds. And yet they've remained valuable for a long time. What gives?

Gold and Diamonds have obvious intrinsic value. Paper money does too, but it's harder to demonstrate.

In all fairness the intrinsic value of Gold and Diamonds has only come about in the past 200-300 years... just about when, globally, we started seriously moving towards a purely fiat system.

Gold has been used as a store of value for thousands of years around the world.

Intrinsic. Those people have not been making use of the intrinsic value of Gold, they have been making the same use as in fiat money and bitcoins today, as a rare commodity considered acceptable as a financial instrument. That's (rarity) not an intrinsic value.

That is to say, its intrinsic value includes electrical conductive properties and capacity for use in electrolytic plating. I am ignorant, what are some other intrinsically useful properties of Gold (and Diamonds?)

Well diamonds actually have a ton of useful properties -- beyond just being pretty to look at -- but that doesn't actually justify the price per se.

The problem with Gold is also it's virtue: it's rare. Rarity is good in that it implies value. But let's say you're the American economy and you're growing 2% this year. Should your money supply be governed by how much of it you can dig out of the ground? That is, for example, when South African gold mines were discovered the money supply internationally radically increased, despite having no relationship to economic output. That ends up not working out very well.

Bitcoin though could be thought of more like gold and diamonds not because those things are good to think of as currencies -- they really are not good currencies at all-- but because their all commodities with limited supplies that have markets that move on vagaries with little relationship to any economic necessity or output.

Well diamonds are also valuable because of their use as a coating for cutting instruments. But, much like diamond, your point is solid; gold and diamond have been valuable over the years for the sole reason that people are willing to accept they are valuable.

Are you referring to the relatively recent industrial uses of gold and diamonds, or are you counting ornamentation as intrinsic value? Don't see the argument for the intrinsic value of paper money at all, but would love to be enlightened.

> Don't see the argument for the intrinsic value of paper money at all, but would love to be enlightened.

You can pay your taxes in it.

You could pay taxes using the German Papiermark or Zimbabwean dollar, and look at what happened to them...

Intrinsic value is not determined by the ability to pay taxes.

Fiat money has zero intrinsic value (well, beside the value of the paper and metal bills and coins are made of, but this value is negligible - spare the US penny coin).

Obviously the importance of paying taxes directly depends on the strength and stability of the government collecting them.

I am personally sure that 1) the US govt will be here tomorrow to collect and 2) they have enough guns to do so.

Your original claim was that fiat currencies had intrinsic value. I don't see how 1) or 2) support the fact a fiat currency has intrinsic value. On the contrary, history shows that fiat currencies always significantly lose value over time. The USD for example has lost 85% of its value over the last 50 years. How is this observation compatible with any sort of intrinsic value? "Guns" and "taxes" did nothing to prevent this loss of value...

What you are trying to say, I believe, is that fiat currencies will likely have some value in the future because they are in demand (notably from taxes). That is true, but this is no different from Bitcoin: it has value because it is in demand. I would argue that the potential demand for Bitcoin is higher than the potential demand for USD, if only because there are billion of people across the world from countries with terrible fiscal policies for whom Bitcoin is clearly superior to their local inflation-ridden currencies. Compare this number to the merely 200 million tax payers in the USA.

This argument comes again and again in this discussion, and I still dont get it. Why would you value something because it can be taken away? By that logic, increasing taxes makes the currency more valuable. Lets go to 99.9% taxes on dollars and see our money shoot to the sky!

Even if you had a job that paid you entirely in bitcoins, and conducted every transaction in bitcoins, you would still have to pay taxes, and (under the current system) they would still be denominated in US dollars.

Why do you value water? It's just something that can be taken away.

I dont value it because it can be taken away. I value it because i need it to survive.

You don't value USD because it can be taken away, you value it because you need it to stay out of jail.

You know, there was a startup back in the spring that allowed municipalities to accept bitcoin for fees and taxes. Haven't heard any more about them though...

I agree that paper money has value, I'm just not sure that it is intrinsic. I'm also not sure a currency necessarily should have intrinsic value.

>Don't see the argument for the intrinsic value of paper money at all, but would love to be enlightened.

There's thermochemical energy in them cellulose bonds. Just gotta liberate it with a little bit of a kick.

So tying the dollar to the gold standard is meaningless, because paper money is in itself intrinsically valuable? I thought the dollar was fiat [1], i.e. without intrinsic value. Just like bitcoin.

[1] https://en.wikipedia.org/wiki/Fiat_money

The value of paper money is something like "If you want to exchange your work for goods and services, you will need to provide paper money to the local gang, or else." If the gang in power changes, or at the whim of the gang in power, the money can quickly become worthless. For instance, I have not succeeded in trading réis or markka for bread or gasoline recently.

Bitcoins' intrinsic value are as entries in a globally distributed ledger, or timestamps in a globally distributed timestamp server.

Of course since 1 bitcoin is divisible into 100,000,000 pieces the value is negligible, but if you want to be pedantic it's there.

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