this post was submitted on 01 Feb 2025
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I don't understand how bitcoin has value. I know the dollar has no intrinsic value either; we just all agree it does. But the difference between the dollar and bitcoin is that if you decide to stop trading using the dollar, you become a terrorist and get a free hellfire delivery. If you stop trading using the bitcoin, no one cares. How did this whole bitcoin to value begin? How does a brand new currency start without the backing of a state? Why does it keep having value? It's interesting af.
bitcoin has value because people perceive it to have value.
Basically, it went from like 10 people using it, where it was functionally worthless, to like 10 million people using it, where it's value per bitcoin increased by one million fold.
net money in = net money out, the early investors are just reaping the rewards of other people investing their money into it (and then losing it)
Bitcoin has value because they think other people perceive it to have value. Same with dollars, euros, pesos, etc. It's not like art where the value is in the eye of the beholder. It's something where you have to be confident that other people will perceive it to have value too, so when you want to exchange it, there will be other people who will accept it.
Dollars, euros, pesos, etc. have value because they're accepted in thousands of stores, and because you need them to pay your taxes. Even if you, personally, don't think you'll need to hold onto any pesos to pay your own taxes, you know that there are likely to be millions of other people who will need them for their taxes.
With bitcoin, there are essentially no places you can use it to pay taxes, except maybe El Salvador (I don't know if they're still doing that). You can't use it to pay in many stores. Just about the only thing that keeps creating demand for bitcoin is that there aren't many other ways to pay off ransomware demands. Unlike traditional currencies, Bitcoin really relies on the belief that someone else will continue to believe that Bitcoin is still valuable.
Will the bubble eventually burst? I think so. I just think it could stagger on for a few more decades before the belief it has value eventually collapses.
I think there are people who genuinely think it has value. It's very popular in places like Argentina, Venezuela and Turkey where the local currency inflates so rapidly people cannot save money. To those people, its value is that it holds value better than their local currency.
There is also a lot of speculation in the space, which makes it very tough to determine how much actual value accrual there is
Sure, if your local currency is badly mismanaged, then any alternatives look good. But, you still have to change back to your local currency when it's time to pay taxes.
I wonder how many of those people who are buying Bitcoin with Argentine Pesos are buying it as a store of value, vs. gambling on it going up. If you can buy Bitcoin, you can probably buy dollars, or buy index funds. It could also be that cryptocurrency exchanges are willing to break laws and operate in places where they're not legally allowed to operate. It's hard to keep up with all the crypto exchanges that broke the law that way. OTOH, traditional financial businesses tend to follow local laws. Of course, if you're relying on being able to access your bitcoins when you relied on a crypto exchange operating illegally, you might be in for a rude shock.
The whole point of crypto is you don't need to hold it on an exchange. And there are other real reasons to use crypto today such as cheap & fast international settlement, protecting your assets from authoritarian governments.
I agree there's lots of speculation, and I'm not someone who believes it's likely to replace the dollar, but it's also clear there are legitimate uses
You don't need to hold it on an exchange, but you need an exchange. You need some place where you can find people who want to buy Argentine Pesos and sell Bitcoin so that you can buy Bitcoin and sell your Argentine Pesos.
You think Bitcoin is cheap and fast?
Certainly cheaper and faster than Western Union, but yeah it's horribly slow by modern blockchain standards
Also slow compared to actual payment processing networks for real money.