2 Simple Ways to Explain Where Bitcoins Value Comes From
I get a lot of questions about where the value of Bitcoin is derived.
I love this question.
Mostly because people tend to ask this question to me as more of a challenge than an actual conversation starter.
When I’m at a dinner or gathering and someone (usually someone a few years older than me, bonus points if they’re in Finance) will typically get into a conversation with me about Blockchain, Cryptocurrency, or more specifically, Bitcoin.
For these circumstances I have developed two forms of answers.
One is based heavily on a linguistic tool discovered in the 20th century, sarcasm, and another coming from a more genuine and helpful place in my tiny little heart.
ANSWER I
How to explain Bitcoin and it’s value to an asshole.
“How can you invest in Bitcoin? It’s all just a bubble, there’s no actual value in any of it. It’s intrinsically worthless.”
Let’s go bitch.
I think to myself.
The game is afoot.
“What do you mean intrinsically worthless?”
I respond, calmly eyeing my butter knife.
“Well, the U.S. Dollar has intrinsic value from being tied to our government. The government guarantees that currency will hold a certain amount of value. Who guarantees Bitcoin?”
“No one.”
I say, my hand inching closer and closer to the butter knife.
“Exactly!”, the dinner party asshole exclaims.
Let’s call him, James.
At this point I notice the steak knives being handed out to dinner guests.
It’d be over too quick.
I think to myself.
I’ll stick with the butter knife.
“The U.S. government is currently 20 Trillion USD in debt. It doesn’t appear that company you put your trust in manages money very well.
What would happen if the U.S. were to, I don’t know, do something insane: like allow the housing market to collapse?
Further, no one guarantees Bitcoin because NO ONE HAS TO.
Both the U.S. Dollar and Bitcoin gain their value from trust.
The dollar from trust in the government.
Bitcoin from trust in the fact that complete transparency removes the factor of “trust” out of financial transactions.
I don’t trust anyone because I don’t have to, the technology is completely open sourced, there are a copious amount of people getting paid to verify the public ledger (which is another source of value but more on that later), and anyone at any time can see all of the transactions ever made with Bitcoin.”
I take a break from my monologue to glance back down at my butter knife.
Turns out I won’t need you after all old friend. This duel of wits has met its end.
“Bitcoin gains it’s value in the same way that anything gains value. Supply and demand.
Are you telling me that gold is intrinsically worthless because it’s not guaranteed by a government?
Oh wait, gold is worthless.
The only reason gold has value is because WE GAVE IT VALUE.
We used to buy shit with shells.
FUCKING SHELLS JAMES.
How is it more difficult to believe that ‘a digital currency with a completely transparent public ledger, that is built with the closest tech we’ve created to being unhackable’- has value, than it is to believe that at one point in life someone bought a cow with 10 fucking conch shells.”
“Well geez Reza it was just a ques-”, James muttered before I cut him off, butter knife waving fearlessly in front of me as if to better illustrate my points.
“FUCKING CONCH SHELLS JAMES!
Money is defined by five characteristics:
- Scarcity
- Fungibility
- Divisibility
- Durability
- Transferability
So if it looks like an idiot, smells like an idiot, THEN YOU’RE A FUCKING IDIOT JAMES”.
You couldn’t cut through the tension in the room with a knife.
James looked down at his half eaten salad in what seemed like sadness for about 45 seconds.
Then, the almost-sadness turned into anger and he looked up at me with fire in his eyes.
“If Bitcoin is so great and trustworthy than why is it used to buy drugs? If it’s so transparent than why do criminals always ask for ransoms in Bitcoin?”
James sputtered out, veins starting to throb on his greasy forehead.
“BECAUSE THEY’RE IDIOTS JUST LIKE YOU JAMES.
First of all, 90% of dollar bills in circulation have traces of cocaine on them, and despite my best efforts none of the drug dealers I know will accept Bitcoin. The U.S. dollar is used to buy and sell drugs every single day.
If you’re referring to the the Silk Road, that doesn’t exist anymore.
There are other illegal marketplaces on the dark web now but even they realized that you’re an idiot and stopped using Bitcoin, they now use actual anonymous currencies like Monero and Dash.
Second of all, criminals ask for ransom in Bitcoin because they’re stupid. When law enforcement catch up on Blockchain technology and realize how easy it is to track money on a public ledger, its game over for those guys.”
It’s at this moment that James realized he fugged up.
He jumps out of his chair, reaching for what I only assume can be a firearm.
I calmly cock back my arm and shuriken style hurl my fork.
End-over-end it cut through the air, eventually striking him squarely between his eyebrows.
James collapses to the floor and all the women and children at the dinner party crowd around me telling me how I saved the day.
“Now that’s what I call a hard fork.”
I mutter with a Han Solo half-cracked-smile.
Okay that last part never happens, but if anyone ever tries me like James they’re getting a fork to the dome.
ANSWER II
If you’re having a friendly conversation with someone who really just wants to learn more, here’s a simple and non-sarcastic way to explain it to them.
2. How to explain Bitcoins value to someone who’s genuinely inquisitive
If you’re talking to a friend or family member who doesn’t belittle you and believe that you’re one of the many proponents of the largest digital scam in the history of human beings, you can explain it like this.
Bitcoins value is a reflection of peoples understanding of its utility in security.
The more people and organizations that understand the security value that bitcoin and other cryptocurrencies provide, the higher the value will be.
You see, mining Bitcoin is really just securing transactions.
You’re not mining anything, your essentially a blockchain accountant. Making sure that no one is getting up to any funny business. When someone is mining, they are making the bitcoin blockchain more secure.
So, Bitcoin gets its value from the rising understanding of its implications on security, and the value that people get paid to mine aka “secure” transactions.
Therefore:
The more people that mine, the more secure it gets.
The more secure it gets, the higher the price goes.
The higher the price goes, the more people get paid to mine.
The more people get paid to mine, the more people mine.
The more people mine, the more secure it gets.
Do you see what’s going on here?