The Intrinsic Value of Bitcoin

There’s been comments in the media stating that Bitcoin has no intrinsic value.  The commenters may be correct, yet when you compare Bitcoin to other asset classes you’ll find that many other asset classes have similarities with little or no intrinsic value either.  Even common stocks today that do have intrinsic value trade much higher than the intrinsic sum of the businesses parts.

What often isn’t discussed when it comes to Bitcoin is the functioning business aspect of Bitcoin or the mining business that creates the blocks.  Similar to a business start up Bitcoin miners have to seed the business with funds and take on the risk of mining.  Miners have to acquire rigs, pay for facilities, electricity, and their time in hopes of being successful with their mining endeavor.  Like any new business there are no guarantees how successful a miner will be with their mining.

Miner’s Intrinsic Value

Mining costs aren’t small. A good mining rig can cost more than $10,000, and most serious miners contract for thousands of rigs.  One estimate online shows that it can cost up to $4,000 in electricity to mine a block.  Factor in facilities costs and time and the numbers can add up quickly.  Like gold mining there is also no guarantee that a miner will capture blocks successfully especially as the mining gets harder.

When it comes to a businesses intrinsic value, being able to own a business for less than the sum of its parts is rare these days with the advent of quick information and liquidity provided by the stock exchanges.  Compared to the local pizza joint where the intrinsic value would end up being the ovens, equipment, and possibly good will if any.  A pizza shop buyer would still have to buy materials and make the pizzas even if they were able to acquire the equipment at fire sale prices.

A case can be made that when a Bitcoin miner fails or comes up dry then the intrinsic value of their business is the equipment, facilities, and assets much like that of a business or gold miner.  The coins or tokens are the product of mining, and serve as a value to a miner or holder.  The difference between a Bitcoin and a businesses made product is that Bitcoins have value to many people all over the world as a means for them to trade for goods and services especially in places with governmental oppression or dictatorships.  Bitcoin represents freedom to many around the world.

So a Bitcoin does have intrinsic value to miners.  To miners it represents assets on the books.  To oppressed people trying to build a better life for themselves it can offer them a path to freedom with wealth that can be transferred to a better place or certainty even though their value may be extrinsic.  

intrinsic value

Bitcoins ability to act as a value that can be transferred digitally all over the world is something that could bring change to the world.  Maybe it’ll change the way governments make financial decisions.  Maybe it’ll bring more people together under a common cause.

Certainly, gold is a pretty rock.  Yet it is still just a rock.  A rock that some feel has value.  Most that own gold today don’t hold the gold.  Gold is not easily transferable in large quantities.  In many ways gold isn’t much different than Bitcoin.  Yes, gold is a rock, and Bitcoins are digital tokens awarded to miners for completing blocks and transactions.  Ultimately, Bitcoin’s quantity is fixed at 21 million.  I can’t say that for gold, oil, copper, or coal.  

In some ways it can be hard to grasp Bitcoin because it is digital, yet for the miners involved it is very real and they have real money invested in their harvesting of it.  So to say Bitcoin has no intrinsic value depends on who you are talking to.  When something can potentially make you money or change your life it will have value even if you can’t touch it.

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