The Intrinsic Value of Crypto: Unraveling the Subjectivity Behind Value

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By Rajagopal Menon

The idea that cryptocurrencies, such as Bitcoin, lack intrinsic value and are not backed by anything is a common argument often made by proponents of traditional assets. They argue that gold’s value stems from its rarity and usefulness in electronics. However, this argument overlooks the subjective nature of value and fails to recognize the unique properties and instrumental value that cryptos possess. In this article, we will explore the fallacies behind the concept of intrinsic value and shed some light on the intrinsic value of crypto, specifically Bitcoin.

Subjectivity of value

All value is subjective, arising from the desires, goals and objectives of individuals. Humans assign value to things based on their limited circumstances, knowledge, and perspectives. What has value for one person may not have the same value for another. The subjective nature of value makes it purely subjective rather than objective.

We perceive gold as valuable today because of its rarity, durability, divisibility, portability, and societal trust; its value does not derive from any intrinsic property. The value of gold is attributed to its usefulness in satisfying human desires, especially as jewelry and in electronics. The causality goes the other way: gold is precious, and so we choose to express our status through jewelry made from it.

However, if one were stranded on a deserted island with trucks full of gold, its value would be virtually meaningless. Under such circumstances, the individual would prioritize basic necessities like water, food, and tools over gold. This highlights the subjectivity of value and how it varies depending on circumstances.

Market price as an approximation of value

Given the subjective nature of value, the market price becomes our best approximation of value. The market comprises individuals who make buying and selling decisions based on their perceptions and preferences. These subjective realities, once aggregated, converge towards an objective truth represented by the market price. In this sense, markets operate like distributed computing systems, assimilating subjective perspectives into a single actionable variable.

Verifiable scarcity and trust in silver

Verifiable scarcity serves as a reliable indicator of the veracity of the currency. Money, as a medium of exchange, represents the sacrifices individuals make by devoting their time and effort to earning it. In return, they expect their money to allow them to claim commensurate sacrifices from others. The confidence factor is crucial in this dynamic, because the belief of the markets in the value of the currency ensures its purchasing power.

Unique properties and instrumental value of bitcoins

Bitcoin, in particular, offers several properties that surpass gold in terms of instrumental value. It shares the valuable property’s gold pool but enhances it in several ways. Bitcoin has finite scarcity, but it can never face shortage due to its infinite divisibility, with 1 BTC consisting of 100 million Satoshis. Additionally, the digital nature of Bitcoins allows for extreme portability and resistance to seizure.

Contrary to the misconception that intrinsic value is necessary, the instrumental value of Bitcoins lies in its ability to store monetary capital indefinitely while allowing instantaneous transmission of value across the globe. The often overlooked trust factor is the mechanism provided by the market, and the network of Bitcoin users supports it. The monetary properties of the protocols, permissionless access, and consensus rules that prevent counterfeiting contribute to the instrumental value of Bitcoins.

Another indicator of Bitcoin’s intrinsic value is its hashrate. Hashrate refers to the computing power required to solve complex mathematical problems and generate new blocks. These problems involve generating random strings of numbers, with millions of guesses needed to find the correct answer. Bitcoin miners compete to solve these hashes and win the block reward in BTC. A higher hashrate results from more machines running on the network, which increases overall computing power. Over the past decade, Bitcoin’s hashrate has steadily increased, improving the security of its blockchain by making it harder for malicious actors to control the majority of the network. This strong hash rate has contributed to Bitcoins unparalleled track record of never being hacked, ensuring a secure network.

In conclusion, the conception of intrinsic value, often used as a critique against cryptocurrencies, fails to recognize the subjective nature of value. All value is subjective and depends on individual goals and desired ends. In this context, market price represents the closest approximation of value. Bitcoin, with its unique properties and instrumental value, challenges traditional notions of intrinsic value. Its ability to store value indefinitely and facilitate instant global transactions offers obvious utility and is highly valued by a growing number of individuals and institutions. Bitcoin’s decentralized nature, combined with its limited supply and predictable issuance rate, adds to its appeal as a store of value and inflation hedge. Additionally, the growing adoption and acceptance of Bitcoin by financial institutions and traditional businesses further validates its instrumental value. Finally, what is the premium to place on a hacker-proof network? While critics may argue that Bitcoin lacks intrinsic value due to its intangible nature, the reality is that value is ultimately determined by market participants who recognize and assign value based on its usefulness and potential for profit. future adoption. Therefore, the concept of intrinsic value fails to capture the true value proposition of cryptocurrencies like Bitcoin.

The author is Vice President, WazirX

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