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1. Your economics are wrong. Value is not the market price. Value is subjective; the value of something to a given person is the maximum price the person is willing to pay. Value is not the same for each person.

2. BTC's unique feature is the instantaneity and anonymity of transactions.

"Value is not the market price"

Who said it was?

"the value of something to a given person is the maximum price the person is willing to pay"

Which is dependent on the supply and demand of that "something."

"BTC's unique feature is the instantaneity and anonymity of transactions."

"Instant" in the "10-30 minutes" sense, and anonymous in the "you can be tracked" sense...

The maximum price that people are willing to pay isn't "dependent on" demand, it is demand. In particular, it has nothing to do with supply; if something is available for much less than the maximum price someone is willing to pay, then that just means that they get it for a lot less, it doesn't change how much they are willing to pay in principle.

(There are a few subtleties here, such as that willingness to pay should be measured in terms of opportunity costs rather than dollars, but all this stuff can be found in an economics textbook.)

"The maximum price that people are willing to pay isn't "dependent on" demand, it is demand. In particular, it has nothing to do with supply"

What the is maximum you willing to pay for breathable air? How much would you be willing to pay if you could not find free air everywhere you went?

Demand is not "the maximum price people are willing to pay," it is "the willingness and ability to pay a given price."

Endoself is correct.

That's the problem with HN. It is clear when someone's arguments have no foundation in modern economic theory and practice, yet these arguments get thrown around with a false sense of certitude. I cited the textbook definition for "value," and yet you argue that it's dependent on supply and demand, which ignored the fact that the definition of value that I cited is precisely what makes up demand.

Person A is willing to pay $200 for a watch. Yet the market price of that watch is $20. Just because that person saved $180 does not mean that value of the watch to person A suddenly and magically fell by $180. Clearly this person found $200 worth of utility in that watch, or else s/he wouldn't have been willing to pay for it at that price.

> "Instant" in the "10-30 minutes" sense, and anonymous in the "you can be tracked" sense...

Now your arguments are focusing on semantics.

EDITS: clarity and less snark.

"I cited the textbook definition for "value," and yet you argue that it's dependent on supply and demand, which ignored the fact that the definition of value that I cited is precisely what makes up demand."

If your textbook is telling you that value is equivalent to demand, perhaps you need a new textbook. It is easy to illustrate the effect supply has on value with the following thought experiment:

  If I told you that I was charging $10 to step inside my house and breath some air, would you be willing to pay?  Now imagine a world where breathable air is a scarce resource, and there are no other sources of breathable air for miles around my house; would you be willing to pay in that case?

You cannot seriously bandy about the concepts of supply, demand, and market (equilibrium) price, concepts which form parts of basic economic theory, and then throw out the standard economic definition of value.

> perhaps you need a new textbook.

That clause is utterly devoid of any logical content.

Your thought experiment demonstrates nothing except the basic concept of "people will buy whatever is cheapest." Let's say fresh air is worth $1 million to me. If you were charging $10, I would not pay because I can get it for free and gain a "consumer surplus" of $1 million. That does not change the fact that I would be willing to pay $1 million if air were a scarce resource.

"You cannot seriously bandy about the concepts of supply, demand, and market (equilibrium) price, concepts which form parts of basic economic theory, and then throw out the standard economic definition of value."

There is no "standard" definition of "value:"

http://www.ehow.com/info_7904133_difference-between-classica... http://www.econlib.org/library/Enc1/NeoclassicalEconomics.ht...

Your claim that value is nothing more than "demand" is not universally accepted among economists. I did not throw out any definitions; all I did was point out that value is affected by both supply and demand, which is a straightforward neoclassical interpretation.

Firstly, that eHow article you cite is hardly reputable, and it basically contradicts itself. It states that in neoclassical economics, value is a function of supply AND demand, yet it goes on to state that value = utility. That value=utility argument is what is I am trying to say. Utility has nothing to do with supply.

The other article only prove my point. Neoclassical economics is the "mainstream," "standard" economic theory, for both conservative and liberal economists alike. It mentions classical economics only for the sake of historical context (it was prevalent in the 19th century but is now outdated).

You don't even properly state my argument. I never said value = demand. I said value is what makes up demand. That is an important distinction, and it is one that makes sense (if you don't value something, you don't demand it. If you value something, you do demand it.)

Lastly, you ignored my response to your thought experiment.

I think bitcoins real value to people is it's a P2P solution to the double spend problem.

"monopoly money, or acorns, or lumps of clay" can be created almost indefinitely. Of course BTC can too, but must be done by forming consensus amongst the majority of the P2P systems. Lumps of clay you don't need consensus. Just more clay.

"What drives the citizens of a country to use the currency issued or authorized by that country's government?"

Legal Tender law. If a debt is offered to be paid in 'legal tender' and the debtee refuses to accept it, the debtor can have the court discharge the debt under the law.

""monopoly money, or acorns, or lumps of clay" can be created almost indefinitely"

Make an acorn for yourself in that case. Acorns are pretty similar to Bitcoin in that regard: you need Oak trees to produce acorns, just like you need CPU time to produce Bitcoin.

"Legal Tender law. If a debt is offered to be paid in 'legal tender' and the debtee refuses to accept it, the debtor can have the court discharge the debt under the law."

Not all countries have such laws. There is, however, another important category of law that gives fiat currencies their value: taxes. The fact that law-abiding citizens must pay their government periodically creates a large demand for whatever the government accepts as a tax payment. Typically, governments accept a currency they issue, or else they authorize the use of some other currency.

> What is the demand for a medium of exchange?

People accept a medium of exchange in exchange for their goods and services because they trust that they can later exchange it for something they want.

The "demand" for a medium of exchange lies in direct bartering being inconvenient, because whoever wants something you have, might not have something you want, right then and there. In this case, instead of a trade not happening, you can just accept a medium of exchange, and use it later to get what you want.

> Why not just use monopoly money, or acorns, or lumps of clay?

If people knew they could exchange lumps of clay for goods and services, they would accept them as payment for goods and services.

> What drives the citizens of a country to use the currency issued or authorized by that country's government?

That very same government?

> Unless the government is accepting Bitcoin for tax payments -- which would effectively turn Bitcoin into a fiat currency

It would turn Bitcoin into legal tender. Legal tender can be fiat or not (for a very long time, gold was the legal tender).