The closest "normal" thing to Bitcoin is commodities, since it's a non-performing asset. It's also deflationary since its total supply is fixed (somewhat like gold, of which not much more can be mined at reasonable prices). But it does not behave like any other commodity - it's much more volatile. It may start to calm down at some point.
Most valuations make sense as they are tied to the intrinsic value of things. A potatoe will feed you for a while. The value can vary - a potatoe farmer won't be hungry, so the value is to learn a living, a hungry person will value a potatoe very high. The price at each step in the chain between the farmer and the hungry person is determined by a lot of factors - distance and the scarcity vs. need at each point. Same as real estate - the market value will vary, but is cornered by the fact that each piece of land only exists once.
With Bitcoins the value is only set by an artificial demand. There is nothing left over, if demand stops. You can't eat a Bitcoin. There is no limitation on creating new cryptocurrencies. It is like the million dollar homepage. It was once valued with a million dollars but I doubt, anyone would pay any significant amount for those pixels now. Why? Well, yes, there is only one million dollar homepage, but if there was any demand, you could create a similar page for a few dollars of effort.
You can't eat a dollar too. Intrinsic value of a dollar is smaller than a piece of paper, as it's not even that good for taking notes. It's valuation is the same: based on artificial demand.
The point of the dollar is, that it is backed by the United States of America. By the government the Federal Reserver Bank as the front line of setting and defending the value of the dollar. And by the whole US industry, which is trading their goods in dollars. That is the reason why modern currencies are generally valued vs. the gross domestic product of countries.
Yeah, I'm pretty sure that Federal Reserve hasn't been really backing the dollar. The gold is there, sure, but it isn't connected in any way with the value of dollar. The Federal Reserve surely doesn't have enough goods to back all of the dollars in circulation. The fact that US industry is trading by dollars doesn't change the matter. There are quite a few businesses that trade by bitcoin.
The dollar has not been backed by gold for a long time. It is backed by the Federal Reserve bank by the political power of the US and of course by the GDP of the US. Like with gold prices, there is quite some flexibility in the value of a currency, but that flexibility is contained in certain intervals because of the influence and the acting of the Federal Reserve bank. As long as the US doesn't default, the dollar has a value.
Valuations are not tied to intrinsic value... whatever that means.
“Value” is measured by what someone paid. Nothing more, nothing less. If I buy an apple from you for $5, that means both of us valued the apple at $5. The end.
To understand how meaningless the notion of intrinsic value is, ask yourself what the intrinsic value of water is? Drinking it? Bathing with it? Swimming in it? Cooking with it? Watering a garden with it? Washing a car with it?
Different people value water for different uses at different times for different amounts... there is no dollar value intrinsic to the water itself.
Value certainly isn't something you can objetively tie to a fixed number. But water is a good example. It definitely has a value and this value nicely shows the basic mechanisms of economy. First of all, water supply differs strongly by region. Lots of water around the great lakes, little in Arizona. Ocean water is plentifull, but of little value due to the salt, which can be removed only very expensively. So the value of water depends on the distance from the next large water source. This is the reason, Arizona isn't the largest farm state - there is enough sun, but not enough cheap water.
Water for washing your car or watering your garden is relatively cheap, drinking water is not. Because for drinking water you need to get a cleaner source or spending effort to clean it. In many regions, tap water is perfect drinking water (and usually relatively expensive) in other regions not. Bottled water is yet more expensive because of the effort of bottling and transporting the bottled water. Of course you have effects like expensive French bottled water in the US, but that nonwithstanding bottled water is more expensive than tap water which is more expensive than river water.
We are conflating different terms. You're saying "value" but meaning something different than the market value of something. Value is a measure. It's quantitative not qualitative.
When someone says "this thing is valued at $5" it means someone traded or is willing to trade $5 for that thing. It doesn't have anything to do with what you can use that thing for.
Yes, water is "valuable" as something to drink. That has little to do with what someone paid for some water.
You -- and lots of pesky Bitcoin speculators -- are missing the point. Bitcoin is currency. If it weren't for speculation, Bitcoin exchange rates with state-based currencies would be relatively stable. There's some deflation by design, but not enough to matter, unless you hoard.
Exchange rate volatility is problematic. My solution is mainly to have more Bitcoin than I'd ever use, unless its value crashed. That works for me because I accumulated most of it years ago, and I'm too paranoid to cash out.
Otherwise, I'd need to distribute among multiple resources that were relatively stable, or didn't move together.
But not mainly in a speculative way. Fundamentally, there's no safe way to move enough to matter without raising flags. As in, "where did that money come from"? I really don't want to go there.
I don't care about the taxes so much. It's the linkage to my online personas that I care about. And I just don't want to deal with questions that might touch on them. Because I know a little about interrogation, and I know the risks of lying to investigators.
And the freakiest thing is that I have no idea what sorts of investigations some of my personas might be part of. I'm a decent guy, myself. And much of my Bitcoin came from writing, mostly for IVPN.
But I've also done some consulting with other anonymous cowards. I'm adamant about not wanting to know anything about what clients are doing. But I gotta wonder, sometimes.
So anyway, keeping online and meatspace finances totally separate is just part of my OPSEC.
I think you misunderstood me. I am making the point that Bitcoin has basically no value. Its only value comes from the fact that currently enough people think it has a value. Like the million dollar homepage. Once the novelty has worn off, it could drop to 0 value.
No currency "has value". For dollars, it's the US government.
Bitcoin has value for three main reasons: 1) it can be used to buy stuff online, and can be anonymized; 2) it's not controlled by governments; and 3) it's a popular speculative asset.
The first two aren't about novelty. Sure, if something else comes along that does those things better, people will shift. But none of the existing alternatives has managed that yet.
The third does have a huge novelty component. And personally, I wish that all the bloody speculators would just piss off. But whatever, I can live with them. And free money is cool too.
Yes, Bitcoin seems to be popular in the trade of illegal goods and for paying ransomware. Doesn't exactly explain why most other people invest so much into Bitcoin. And the security is very dubious, considering the track record of Bitcoin exchanges.
Couldn't the same be said about the US dollar? In fact there's no limit on that one. With the fractional reserve banking in place as todays standard the Federal Reserve just print more notes when needed to bail the banks. The whole system is based on trust. Trust does not scale well.
There are no infinite buyers and sellers. With intrinsic value I meant that there is something tangible you need or want. And the local supply of that thing. Which is determined by the effort of providing a thing. That is why beef in a farm town is cheaper than hundreds or thousands of miles away, as the whole chain of transportation and reselling adds cost.
> With intrinsic value I meant that there is something tangible you need or want
the whole idea of "intrinsic value" is that it is not tied to "needs and wants", because "needs and wants" is just another way of saying "market" and on a market there is only speculative value.
"intrinsic value" as a concept is used to derive valuation of a company based on it's assets, liabilities, etc - fundamentals, as opposed to market capitalization. taking the concept of intrinsic value out this context is meaningless because nothing in the universe has intrinsic value.
I see that you have an issue with determination of value, because you are describing it on the way you value things only. After you solve problem with understanding that the value of everything is relative you give a chance to bitcoin too.
You are saying that there are no infinite buyers and sellers, you are right but there are no infinite bitcoins too.
You are taking an example of beef cause you thing it has intrinsic value but let me tell you that in some states in India if they find you eating beef, they will even punish you for that.
Everything's value is relative based on the usage, and usage creates demand.
As conclusion, if community of libertarian will grow, Bitcoin's value will rise because demand will rise, if not, it is likely to fail.
But nothing is black and white, people will take sides and we will always have haters and lovers. There will always be enough bitcoin to serve people they want to use and not enough for the value to become zero.
You've confused intrinsic value of X with the cost of building X. Let me illustrate with an example.
A 1000 tonnes mountain of cow poo has near zero intrinsic value (perhaps even negative because it's a biohazard; people and government(s) are gonna get pissed and tell you to clean it up). That does not mean it didn't cost anything to create it, it was probably somewhat expensive to set up.