> If the technical solutions were worth nothing wouldn't the value tend towards zero?
Nonsense. The value of Bitcoins is not the value of the algorithms behind it. People agree to trade Bitcoin for that amount of money and that's it. Market laws.
Just like the value of cash is not determined by the technical solution behind it (essentially colored inks on a piece of paper).
> Just like the value of cash is not determined by the technical solution behind it (essentially colored inks on a piece of paper).
The value of paper money is actually pretty intimately entangled with the quality of its anti-counterfeiting technology. If anybody could just print viable currency on their home printers, cash would be useless.
The counterfeit rate of UK pound coins is 2.5%, yet you can easily exchange ten of them for a £10 note. If what you state was true, people would not be willing to give as much as £1 per coin.
That's very interesting and surprising (I would have guessed much less than 2.5%), but I don't see how it refutes my point that any currency's value is related to how easily it can be counterfeited. There's probably a threshold or two involved, where the convenience of having simple exchange rates between forms of the same currency compensates for losses to counterfeiting as long as the counterfeit rate is low enough.
I don't think you're actually arguing that I could build a currency that scales beyond a tribal scope out of something that's trivial to copy, but that's the point I'm trying to make. If it's too easy to cheat, people will stop trusting the currency and will use something else; therefore the technology behind the currency does affect its value.
Yeah, I do get your point, I think though that the value of currency is more to do with trusting the backers/issuers of the money, rather than any direct relation to counterfeiting. If counterfeiting becomes too rife, then that will start to damage the trust of the money issuers. The relationship is complicated though.
The UK £1 counterfeit rate is almost unbelievably high, but the key point is that individuals aren't really affected by it. The coins are all 'good enough' that you are unlikely to ever have any rejected by a shop, so the end result is no-one cares about it. (Incidentally, it's actually harmful to check your own cash for counterfeits, since spending counterfeit money is a crime, but ignorance is an accepted defence.)
(I don't know where the buck stops. Do banks check for counterfeit coins and reject them from shop's cash deposits? I'm absolutely not trying to say that counterfeiting coins is a victimless crime, just wondering whether everyone shares the cost or whether it eventually catches up with one unlucky party)
So all market valuations exist in a vacuum, and say absolutely nothing about how much something is actually worth? And how do you think this economic theory applies to the stock market or commodities markets? Are shares in companies and commodities inherently worth nothing but the price people agree to pay for them? Don't they say something about their collective belief in that asset's future?
Market valuations can become decoupled from intrinsic value, but that doesn't mean the intrinsic value is zero. In the long term if something really repesents zero value its market valuation will approach that.
Bitcoin is a cryptocurrency. Bitcoin is also a technology. You're conflating the two. You could have a cryptocurrency without a block chain and you can have a block chain that has nothing to do with cryptocurrency.
They are very much linked to one another. If BitCoin didn't offer anything novel over and above other media of exchange, like fiat currency, its value would approach zero. Its differentiating quality is the blockchain and peer-to-peer distributed concensus.
You could have a cryptocurrency without a block chain
Perhaps, but then you'd need to solve the problem of trust-less peer-to-peer Byzantine concensus a different away, using a different mechanism. And that's exactly why the blockchain is novel.
What something is worth depends entirely on its context and available substitutes (aka. supply/demand), for example a generator isn't worth that much under normal conditions as people have the grid as a substitute.
After a hurricane or something else that removes the grid as a substitute the generator is worth substantially more.
Ask yourself how much you think a lion would pay for your gold ring, house, or anything else you think has intrinsic value.
The nature of trade incentivizes individuals to find resources that are less valued by one person and more valued by another. For example starbucks finds coffee beans from farmers who don't find them terribly valuable, and sells them back to consumers who find them much more valuable, especially in conjunction with their value adds. Coffee beans are worth different amounts to different people, only when we make a transaction do we start to discover price.
> People agree to trade Bitcoin for that amount of money and that's it.
Yes, however Bitcoin is still not used very much for traditional goods-and-services trade. Many people are buying Bitcoin as an investment in the ecosystem. They see the value in Bitcoin technology, and believe that it is promising enough to increase in value.
Nonsense. The value of Bitcoins is not the value of the algorithms behind it. People agree to trade Bitcoin for that amount of money and that's it. Market laws.
Just like the value of cash is not determined by the technical solution behind it (essentially colored inks on a piece of paper).