Bitcoin Shows What People Think About Value

Money has no intrinsic value. What matters is how much you can consume with it. With all the talk about Bitcoin, a new digital currency, with the documentary Banking On Bitcoin noting the benefits and vices, you would think that this (notably) philosophical issue would be paramount. But, apparently, what matters more is that people have lost faith in financial institutions following the 2008 Great Recession. This has lead to a few brave souls attempting to make their own currency, which is “mined” by computers solving complex problems, in order to subvert the financial world order. Cue anarchists/libertarians who use the currency to run an internet market-place (Silk Road) where anything can be sold (and whose founder ultimately went to jail), investors/speculators who want to get in early enough to make a quick buck, and the regulators who swoop in on the pretext of adding stability but who then set up their own consulting firm to help companies navigate the complex regulations they have just imposed…

Which leads to the question of what is Bitcoin worth? The current value is about $3500 dollars per coin (ironic that the value of this “cryptocurrency” has to be converted to something people actually understand). This is an enormous return for the lucky few who bought and/or mined Bitcoin when it was essentially worthless, although it raises the issue of arbitrary reward which is notably lacking in said commentary of the currency. What is really the issue here is the unease most people have with thinking about the “worth” of things; money is paper, made by complex macroeconomic systems that they don’t understand (“out of thin air”), it could easily be made worthless tomorrow, why don’t we all use gold instead? Except gold also suffers from the same problems…What if tomorrow everyone decided that this shiny piece of metal wasn’t really “worth” anything? But everyone is so invested in believing that it is, the market would surely never collapse?

The value of things is an intricate belief system which can be made just as easily as it can collapse. For example, why are shiny rocks we call diamonds worth so much even though it is so common? Because the De Beers mining cartel – ahem, company – has an incredibly vested interest in keeping it that way. And now that so many people have bought shiny rocks believing that to be the case, they have no choice but to buy (literally) into the system too, for to do otherwise would be to acknowledge that they have wasted paper money (and hence their hard labour) for something that is essentially “worth” considerably less than they thought.

What does this mean for Bitcoin? Sure, it can’t be devalued into oblivion like printing money can do to paper currency. But, like any market, its “worth” depends on people’s beliefs about it. Maybe that is the more interesting conversation we should be having…

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