Comment by Ologn | Hacker News Reader

Comment by Ologn | Hacker News Reader

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That's a tautological answer. When a Bitcoin was worth over 4 times its present value a number of months ago, the same answer could be given - "it's worth that because people will pay for that".

I can give a rational answer for why commodities like apples have value, or a gallon of gasoline, or a table, or a shirt. Even houses in 2007 real estate development projects in the outskirts of Sacramento have a rational (if at one time overblown) value. There is no rational explanation why a hashed number called a Bitcoin has any value. A bar of gold had value 4000 years ago, it has value today, and if the concept of commodity value exists 4000 years from now, it will have value then.

As I said, I pointed all of this out on HN before Bitcoins lost half of their value. I'm quite confident they will be halved again from their present value, and eventually hit $0. They're worthless hashes. Your explanation for why they have value would not have me comfortable as someone holding onto such commodities. Warren Buffett and Charlie ("Bitcoins are rat poison") Munger agree with me.

Things don't have value on their own. They have value to someone in some context. Your Apple has value to a hungry person because it can be eaten, it has value to an apple producer, or merchant, because it can be sold, and it has value to a truck driver because it needs transporting. It's not an intrinsic property of the apple. It is entirely a result of the plans and hopes of those individuals who deals with the apple.

You can of course counter that all value is derived from the hunger of the apple eater, why else would the driver, merchant and producer bother?

And that's where something like Bitcoin could enter the picture. It establish value in the other direction. It has value to the apple eater because it can be used to buy an apple, to the truck driver because it buys fuel, to the merchant because it buys more apples, and to the producer because it buys a well earned vacation trip.

The intrinsic properties of being of a fixed supply, securely transferable, highly divisible and cheap to store and move around makes it useful as an intermediate token of value exchanged.

That said, I do think the high volatility of Bitcoin takes away much of is usefulness as a currency. In this regard it's to much like gold. A future replacement should probably have an elastic supply like the credit based currencies we are used to dealing with.

> And that's where something like Bitcoin could enter the picture. It establish value in the other direction. It has value to the apple eater because it can be used to buy an apple

Right...but this can be said about any commodity. If I own a new iPhone, or a bar of gold, or what have you, it won't take me long to sell those and buy apples. But iPhones, gold etc. have inherent value and use, Bitcoin has no use value.

> fixed supply most commodities

> highly divisible, cheap to store some commodities have these properties...like precious metals

> securely transferable fortunes are wired from bank to bank around the world every day

Gold is a useful commodity. For wiring, for filling teeth, for other purposes. It is also durable, divisible, uniform, portable, and all those things which make a commodity useful as a currency. Bitcoins are not a useful commodity, they are a hash number ultimately. When the game of musical chairs ends, people flock to commodities that have had value for thousands of years, like gold. They have inherent usefulness and value. Bitcoins don't.

1. Gold had value 4000 years ago because it was rare enough that people could use it as a currency, not because it was a useful metal. Incidentally, it's not useful at all compared to steel, copper, aluminum, etc. hence its use in jewelry.

2. Gold has value today because some people are willing to buy it and some others are willing to sell it. I don't see how it couldn't be the same with Bitcoins (or anything for that matters). Can you explain to me why dollars have value? Euros? Drachmas?

3. You repeating that two successful investors said something at some point doesn't mean they are right, and you saying that they "agree with you" doesn't mean you are right. When trying to find the truth, blindly referring to authority is the last thing you should do.

Of course gold has value due to its usefulness. Plenty of electrical equipment is gold-plated. Dentists fill teeth with gold. It has other industrial uses as well.

The value of precious metals are solely due to their usefulness, extending usefulness to their aesthetic, decorative quality as well. The price reflects this over the medium and long term. Of course, an ounce of silver in 1979 and 1981 was $8 an ounce, but for a variety of reasons it hit $40 an ounce for a few days in 1980. Short term price swings happen due to events, or major technological breakthroughs, but over time, price reflects value and utility.

> Can you explain to me why dollars have value? Euros? Drachmas?

Until 1971, dollars (and other currencies) were explicitly exchangeable for gold. Today they're implicitly backed by gold (or whatever commodity the US government can drum up).

Can you explain why the USA holds thousands of tons of gold in Fort Knox and other places? What is the purpose of the expenditures to hold all of that gold? There is only one answer - to put a floor under the value of the dollar.

Bitcoin does not have thousands of tons of gold propping up its market cap.

The industrial value of gold is far below its trade value.

And the value in jewelry is largely due to its perceived cost - otherwise any number of alloys that look the same would have just as astronomical cost. Just look at diamonds where nearly the whole retail value is based on de Beers marketing and industrial diamonds are in a different class.

> The industrial value of gold is far below its trade value

Huh? Don't supply and demand meet at price? Isn't that mainstream economic theory?

If the price of gold went over its industrial value, or electrical coating value, or value as a tooth filling - then, as mainstream economic theory goes, demand falls as the price rises. The fact that wire manufacturers, dentists, industry etc. buy gold shows that it is trading at its proper value - when they want to use it.

Yes, the price of gold or any commodity can go above its real value for a short period of time, even for a few years. Eventually it always goes back to its utility price though.

> de Beers

I don't disagree that monopolies can fix prices for years, even decades. We can throw in Verizon/AT&T prices for mobile or land lines. Electrical companies. And so on. Yes, monopolies do throw off prices and values.

> > The industrial value of gold is far below its trade value

> Huh? Don't supply and demand meet at price? Isn't that mainstream economic theory?

Supply and demand have nothing to do with inherent value. You said it yourself: supply and demand meet at a price. I can personally value gold at $0, yet can resonably expect to sell it at a higher price tomorrow than I could buy it today.

Have a look at palladium. That metal has even higher industrial value than gold, and is rarer. Yet the market price per ounce is drastically lower than that of gold.

I suspect you're being deliberately ignorant to why Bitcoin, a fixed quantity commodity that is immune to counterfeiting, has value.

You're confounding physical utility and symbolic value. I don't have a problem with Bitcoin becoming a wild success or another case of Tulip Mania. I do have a problem with your feigned ignorance just so you can maintain your initial position.

You're doing yourself a disservice for life. There's no shame in understanding a concept more and discarding misconceptions.

> I suspect you're being deliberately ignorant to why Bitcoin, a fixed quantity commodity that is immune to counterfeiting, has value

A word in your sentence contains the answer to your statement. Commodity. I do not think Bitcoin is a commodity. Commodities are what I can go down to the store and buy - apples, flashlights. Maybe go to another store and buy a bar of gold. All of these things are useful. Precious metals like gold even have properties which allow them to be good currencies (portable, divisible, durable, uniform...) Bitcoins are not like these commodities - they are not consumed! Commodities are.

> You're confounding physical utility and symbolic value

I would not want to conflate the idea of arbitrary utility and the standard price and exchange value of a commodity. Obviously they are different - as someone else alluded to, an apple has more utility to someone who is very hungry than someone who is not.

> There's no shame in understanding a concept more and discarding misconceptions.

As I said earlier - I said right here on HN back when Bitcoin's price was twice what it is now that Bitcoin's price would crash to $0. That is what "maintaining my initial position" is. So far my prediction has been going in the direction I envisaged! Who should be understanding concepts more and discarding misconceptions, me who knew Bitcoins would lose half their value, or those who were hyping it back then?

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