Stupid Opinion: Bitcoin Has No Intrinsic Value and It’s Going to $0. 335 Follow Apr 23 · 10 min read

“Intrinsic value refers to an investor’s perception of the inherent value of an asset, such as a company, stock, option, or real estate.” — Motley Fool Staff, fool.com “Intrinsic value is a measure of what an asset is worth. This measure is arrived at by means of an objective calculation or complex financial model, rather than using the currently trading market price of that asset.” — Will Kenton, Investopedia

“…the topic of intrinsic value foams to the top…”

I propose that not only does Bitcoin have intrinsic value, but it has calculable intrinsic value. Within the Bitcoin sphere, debate rages on a daily basis on how to evaluate its potential price. The speculation around Bitcoin is often discussed in ranges of zero dollars to millions of dollars. Oftentimes, the discussion veers toward adoption as its primary mode of value. With adoption being the aggregate battle cry of use cases as outlined in the white paper, or emergent use cases that were not originally planned, speculators typically provide this as their basis. In these discussions, the topic of intrinsic value foams to the top and usually as an argument against Bitcoin.

As seen in the previous quotes, intrinsic value is a more fluid idea than one might assume. For some speculators, this value is strictly calculable, an objective reality. For other speculators, the hypothetical properties, properties that have not yet been realized, are enough to assign intrinsic value. Bitcoin has existed in this intrinsic value purgatory for some time now. Because traders place so much value on this term, it is commonly used as a tool to determine price. The error occurs when we as traders use the same term but with different definitions. I propose that a singular definition that combines aspects of both to be true.

“Intrinsic value is the inalienable value of a subjective and uniform grouping of energy, mass, or a combination of the two, while in the group’s intended state of entropy.” — Me, I’m wonderful.

“…at all times and in all conditions, entropy increases if an outside force is not working against it”

Entropy is loosely defined as a measure of organization. If something has a state of high entropy, it is disorganized; low entropy, organized. Typically, setting aside artistic interpretations of value, humans seek items possessing low entropy. We do this collectively because at face value, organization is valuable. If I wanted to sell you one of two clay pots, would you prefer the pristine one or the one that was smashed to pieces in transit? If you said the one in pristine condition, you’re ahead of the game. I want to mention that, yes, the broken clay pot still has value, but I want to highlight the difference in value due to entropy. Please be aware that, at all times and in all conditions, entropy increases if an outside force is not working against it. Because of the nuance of this topic, for just a while longer, I want to continue this explanation in the context of tangible assets/commodities before moving on to Bitcoin.

“…despite sand being valuable, we don’t go to the beach and load our pockets full of it…”

Silicon dioxide, also known as silica, is a simple molecule found commonly in nature in various forms. You have most likely interacted with this molecule while on the beach. Sand! Avoiding the complex chemistry and geology of sand (yes, there are many kinds), let’s agree that sand is very common on our planet (Earth, just in case I have a larger demographic than I thought). Is sand valuable despite being common? Of course. Sand, aside from its aesthetic beauty, has industrial purposes. Sand is an important component of glass windows, concrete buildings, paint, agriculture, and hydraulic fracturing. The important takeaway here is that, despite sand being valuable, we don’t go to the beach and load our pockets full of it to go sell later, why? Sand is heavy, I don’t like to carry heavy things, feels too much like work. Sand is common; it’s a hard market to corner since everyone can start loading their pockets with it. Even if it wasn’t so heavy or not so common, I would need to move a large amount of it to make a profit. Moving sand in meaningful amounts requires logistical expertise; a buyer that agrees to buy it and an initial investment in the equipment needed to move it. It’s just not as easy as it seems to turn a profit on sand. This being said, there is a sand industry, and it’s booming right now due to climate change but just play pretend with me a while longer.

“…you would need to then scatter each grain of sand across the universe, in a random manner, and then allow for infinite time to pass”

Sand’s value is attributed to its entropy state and its industrial uses (use case). Sand, as it would be in a pile in front of you, is near its highest entropy state (less valuable), it has little organization other than simply being in a pile. To increase the entropy of your pile you would need to then scatter each grain of sand across the universe, in a random manner, and then allow for infinite time to pass. This would cause entropy to increase as it would now require energy and time to “clean up” your sand and have it placed back into a pile. A higher state of entropy for a given asset is almost always less valuable than a lower one.

Any time that you input energy into a system to increase its organization, you are lowering that system’s entropy. This metaphorical pile in front of you can be “forced” into a lower entropy state (more valuable), but this will require work and time. In the same sense that right angles are rare in nature, the same could be said about organized structures in general. Be it from plant, animal, microscopic organisms, or the heat provided by our glorious sun, energy is required to produce work, and work is required to lower entropy in a system (increase value).

“…I cannot tell you how valuable it would be without understanding how much time and energy was required to create it…”

The simplest way to lower a pile of sand’s entropy would be to divide the pile again into smaller piles. Although the initial pile was not “organized,” it was all in one location, which is a form of organization in itself. Breaking the pile into smaller, but equal, piles lowers the entropy as you have created structure (the uniform piles of sand) at the cost of the time and energy it required you to accomplish the task (work). You could repeat this process for quite a long time, dividing the sand further and further. Each iteration would become more tedious, each time the number of piles doubled as you so carefully divided them in half repeatedly. You would do this for a long time until you hit a wall, the single grain of sand. No longer are you dealing in piles, you have found the fundamental unit of your division. To divide this grain of sand further, it would cease to exist as sand. The constituent chemicals are no longer able to maintain their bonds, slipping away as a gas or liquid. You have found the bottom, the smallest unit that still retains the qualities of sand, a grain. And now, stretched miles in front of you, a uniform grouping of grains of sand, all equally spaced out in a grid that seems infinite. A very organized form of your asset, in its smallest quantifiable unit. This is a very low state of entropy indeed, but you would fear a gust of wind. Despite wind being weak, it would not require much energy to disturb your art installation. Although I would personally pay to see a perfectly organized field of sand, I cannot tell you how valuable it would be without understanding how much time and energy was required to create it and what its purpose would be after achieving the desired state other than to be admired.

“Unfortunately for Bitcoin investors, the intrinsic value is going to be magnitudes smaller than its speculative value…”

What is the intrinsic value of Bitcoin? It’s hard to say, not because it cant be measured or calculated, but because we lack all of the information needed for such a measure. In regards to Bitcoin, we must estimate its value. At face value, to trade your dollars for a Bitcoin, you would need approximately seven thousand dollars. Is this the intrinsic value? Absolutely not. This value is the speculative value of Bitcoin. Unfortunately, for Bitcoin investors, the intrinsic value is going to be magnitudes smaller than its speculative value but never zero.

A Satoshi (‘Sah-toe-she’), similar to a grain of sand, is the smallest functional unit of Bitcoin that still has value as a currency. A Satoshi cannot be divided into a smaller unit without destroying its meaning/value. As an aside, I hypothesize Bitcoin derivatives will step into the market in the future to further quantize Bitcoin, but for now, the Satoshi is the smallest unit. Why is understanding the smallest unit of an asset important? To understand the smallest portion of your asset is to realize a maximum hypothetical liquidity due to its granularity. Liquidity, in the market, is a measure of efficiency, the ratio of time and energy to produce work. A more efficient market most easily discovers the most “fair” trading price for business to occur.

“…data isn’t just beautiful, its valuable”

Speculators, typically bears, will argue that Bitcoin has no intrinsic value, because it doesn’t actually “exist.” Poppycock. Bitcoin is very real and very physical. The structure of Bitcoin is stored not on just one computer but many computers around the world. A crystal is simply silica pressed into a uniform shape with enough energy to cause spontaneous regularity and structure of its constituent parts (silica). Although silica, for the purpose of this article, is worthless, when humans or mother nature introduces enough energy and work, a valuable crystal emerges that has uses aside from the aesthetic. This, I would suggest, is analogous to Bitcoin almost exactly. Through work performed by computers, a structure of ones and zeros forms a structure that can now convey information. This information is then translated by humans into a method of conveying value using the properties of the data structure. Even more exciting is that this digital crystal can convey authenticity of its structure and uniqueness. Absolutely mind blowing. How can someone live in the self-proclaimed age of information and not realize that data isn’t just beautiful, it’s valuable.

Anyone that has ever attempted to mine Bitcoins can attest to the unusually high electric bill they get every month. To mine Bitcoin is to drink electricity with a zealot’s purpose. Time and energy go into the creation of every Bitcoin; there is no exception. This also leads to my dilemma of calculating the intrinsic value of Bitcoin: I don’t know what everyone is paying for electricity. I have read rumors of power plants mining Bitcoins with their unused reserves. I have also heard that Bitcoin in itself uses the same amount of electricity as a small country (I believe it). If it takes so much time, so much energy to set these digital bits into a structure that conveys information and value, is that not intrinsically valuable?

“We would be invested in the Museum of Bitcoin”

In other arguments I have heard that if Bitcoin goes to zero, it is proof that it has no intrinsic value. Again, absolutely wrong. Intrinsic value does not require the market to agree, only the humans interested in exchanging it. If the market value of Bitcoin reached zero, I would buy them all and then sell them at a profit, because I would see their value. I would see value in how many lives have been disrupted or enhanced by the data on my computer, knowing that simply by existing through time and interacting with so many people that emotional attachments had formed to a very unique data structure. I would sell them, individually, in a commemorative fashion. The people that would buy them would simply want to have a piece of technology that changed the world. We would be invested in the Museum of Bitcoin.

I don’t see how as emotional humans attached to our past as we are, that Bitcoin can ever reach true zero. I still see an opportunity to grab some more of these highly collectible Bitcoins at a great price in mid-May. As referenced in my previous article, Opinion: Bitcoin won’t make you rich any time soon, I see a $5.5k Bitcoin being a very reasonable short term goal. I suspect this will happen during or around Bitcoin’s favorite festival, “The Halvening.” I suspect there will be a momentary, seconds-long plunge to $3.3k mid-May. I hold a position in Bitcoin as of publication and plan to collect more. I feel that for Bitcoin to reach true zero, humans would need to stop existing. Even if humans did vanish, aliens might find our hard drives and give leverage trading a shot.

Stay safe out there, space cowboy.

“The poor will teach the wealthy”

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