Bitcoin has no intrinsic value. It isn’t backed by anything.

Bitcoin has nothing backing it. The price is unsustainable because it has no intrinsic value, unlike gold.

Fiat currencies are backed by the faith in their governments. This results in a much safer and stable situation for everyone involved.

Intrinsic Value

Some people like to claim bitcoin shouldn’t be worth anything because it has no intrinsic value. You can’t do anything with it, it’s all 0s and 1s. And the only way to get any value out of it is to sell it to someone else.

Let’s pose a hypothetical situation for people who think like that.

Suspend belief for a moment and pretend you don’t have any back ups of your phone and computer data. Right now, if your hardware was replaced with brand new, off the shelf models, would you care that your data did not follow? Would you care that you suddenly lost all the contacts and pictures on your phone, or the files saved on your computer? How much would you be willing to pay to recover your data? 

The concept that just because something is intangible it is not valuable is ridiculous. Adobe makes computer programs that you can’t hold in your hand, Microsoft makes operating systems you can’t feel or touch. Yet, these tools provide value to millions of people around the world because they know how to utilize them to their advantage. Just like Bitcoin is a neutral, border-less, and censorship resistant tool for people to transfer value across the world. They can use bitcoin to achieve their goals even when the modern financial system is cutting them off.

Some people also like to claim gold has intrinsic value because it is useful for things other than storing wealth. Applications like jewelry, cuff-links, dental fillings, electronic components, and medals are big reasons why gold is so popular. While no one is doubting that gold is a useful element, there is reason to believe the entire value of gold is not based off its tangible applications.

Today, gold is sitting at a market cap of over 10 trillion dollars. If we stripped away the store of value function of gold and used it specifically in tangible products, what would be it’s market cap? Would it stay at 10 trillion?

The truth is, the majority of gold’s use case is being locked in a vault preserving the wealth of it’s holders. Bitcoin is a technological improvement for storing value. It is far superior to gold in it’s portability, divisibility, and maximum supply limit. And it’s competing with gold on durability, uniformity, and acceptability. 

Government Backing

A common misconception is that the US dollar is backed by gold. This has not been the case since 1933. Gold backed USD was replaced with fiat, a money that is used “by decree”. A money with no intrinsic value or use case other than to give it to someone else.

Currencies like the US Dollar, Euro, Pound, and Bolivar are all fiat money. Citizens do not choose to use these currencies, they are forced into these monies due the geographic location of their birth and the tax policies of their local governments.

Paraphrased from Vision Times

A study by DollarDaze found that there has never been a fiat currency that has been successful in holding its value over time. Let’s look at the most successful fiat currency, the British pound, which is the oldest surviving example. In its entire existence, the British pound has lost almost 99.5 percent of its value.

The most used currency internationally is the U.S. dollar. Since it was issued in 1913, the U.S. dollar has lost 92 percent of its value. To pay off billions of dollars of loans every year, the U.S. has to keep increasing its supply of bills by around 13 percent every year, pushing the value of the U.S. dollar even lower. And just as it happened with Rome, Germany, and countless other nations, the only logical end of this cycle is in the dollar’s complete devaluation and eventual cessation.

People who were born into the US dollar system seem to forget there are 100s of other countries with their own currencies that do not compare with the success of USD. The people of Zimbabwe, Venezuela, or Argentina have no choice but to use the money their own governments chose to collapse. Correction, they had no choice until a border-less, censorship resistant, and neutral asset like bitcoin came along.

Bitcoin is Backed by the Network

Bitcoin is a decentralized network. There are over 7,000 listening nodes and over 80,000 individual nodes running on the Bitcoin network. These nodes assist the network by enforcing the rule set of the Bitcoin protocol. They validate potential transactions and blocks proposed by miners while also keeping track of rules like the supply cap, block times, block size, and UTXO set, among other things.

If someone tries to submit an invalid transaction or break the rules, a bitcoin node will reject the transaction. If it’s consistently happening, the node will isolate and cut off the malicious peer.

This is rules without rulers. These are individual operators around the world choosing to run this specific rule set and node implementation. If you want to change the Bitcoin protocol, you would have to convince every single one of these users to change the software they run on their own machines. This is decentralization.  

Because a node enforces all rules by default, running one makes identifying a counterfeit bitcoin transaction trivial. If you receive bitcoin using your own node, you can know it is authentic as nodes are always running the numbers. The same can not be said for gold as it is quite the ordeal to verify.

Bitcoin is Backed by Energy

Paraphrased from  Hugo Nguyen’s The Anatomy of Proof-of-Work

Bitcoin uses Proof of Work to distribute new bitcoin in a fair and decentralized way. See the Energy Usage FUD if you are already getting triggered about climate change.  

What PoW mining actually does under the hood, is that it converts electricity into a ledger block. A mining machine is basically guessing at random until it finds a match, similar to a lottery.  It repeatedly performs hash operations until it solves a cryptographic puzzle. All hash operations are thrown away except for the one hash that solves it.

This one tiny hash, which itself takes very little energy to compute, is a direct representation of the huge ball of energy that was required to produce it. The “proof” that the block was minted. In order to rewrite the block, an attacker later will have to spend a roughly equivalent number of hash operations that was originally required.

SHA256 is the hash function that backs Bitcoin PoW mining. SHA256 protects the ledger from being rewritten. One hash in (to mine), one hash out (to revert). This is what gives Bitcoin its immutability property.

By attaching energy to a block, we give it “form”, allowing it to have real weight & consequences in the physical world. We can also think of PoW as the magic that brings a bunch of 0s & 1s into life. In other words, PoW is the bridge between the digital & the physical.

PoW gives us immutability, which gives us uncensorable money, which could potentially change how society organizes itself.

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Bitcoin Use Cases

From Jameson Lopp‘s The Multifaceted Nature of Bitcoin
  • -For consumers it is a way of making a purchase without handing over all of your financial details and thus having to trust the security practices of every merchant with whom you do business to keep your information safe.
  • -For merchants it is a way to save money on fees and (at the moment) market to a tech-savvy segment of the populace that is known for having high disposable income.
  • -For people with friends and family living in other countries, it is a way of sending remittances quickly and cheaply.
  • -For the unbanked and underbanked, such as adolescents / the homeless / citizens of third world countries, it is a way of storing and transmitting value without the need to jump through the hoops required by the existing banking system.
  • -For citizens living in countries with insanely high rates of inflation and strict capital -controls such as Argentina, it can be (surprisingly) a more reliable store of value than government-issued currency.
  • -For investors and traders it is a high risk / high reward speculative commodity.
  • -For groups of people it’s a means of coordinating control of pooled assets across multiple owners via multisignature addresses.
  • -For cryptographers it is a fascinating application of their field’s concepts and a platform for further experimentation.
  • -For programmers it is a public ledger that is nearly free to use, and an easy way to automate payments in their software without relying upon third party payment processors.
  • -For payment processors it is a new method of transmitting value over long distances at little cost.
  • -For economists it is a fascinating real-world experiment in Austrian theory to observe.
  • -For libertarians and anarchists it is freedom from the state’s monopoly on money.
  • -For innovators it is a way to crowd fund ideas without needing approval from a financial institution.
  • -For miners it is a way to legally “mint” money.
  • -For tax-averse individuals it may be a method of applying the legal manueverings of the wealthy to the common man in order to defer tax accountability.
  • -For gamblers it can provide a platform for playing provably fair games.
  • -For democratically-run organizations it may be a new system for voting.
  • -For content creators it is a new method of being paid for their work via micropayments / tips.
  • -For attorneys it is a new method of proving ownership of assets and writing contracts.

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