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December 31, 2013 12:46 am GMT
Business Insider’s Joe Wiesenthal today published an interesting piece on Bitcoin, partially responding to Paul Krugman’s somewhat inscrutable recent blog post that called the cryptocurrency “evil,” and partially answering the question of why Bitcoin has value. It’s been a topic we’ve been discussing for months, making Wiesenthal’s argument worth digging into. He breaks Bitcoin into three interrelated characteristics that support one another: It’s a currency, equity, and a social network. Bitcoin acts as a currency because you can use it as a generic exchange medium in lieu of dollars and other traditional currencies in a growing number of places. Bitcoin also at least behaves as an equity, because the more people whouse and accept it, the more the value of each coin — at least thus far — generally rises. Interestingly, Bitcoin’s ability to act as a currency and an equity are both predicated on its network effects.Wiesenthal puts this succinctly: “Strong, robust network effects are crucial for making the whole thing work.”He links toAntonis Polemitis who makes the same argument: “If people stop using bitcoin, its intrinsic value is zero. Its value is 100% derived by the fact that it is a network.” If we view Bitcoin’s value as a currency and an equity as supremely predicated on its strength as a network, we can then state that its value rises and falls with the strengthof that network. This means that Bitcoin’s value is something that we can therefore better understand. The gist is that it’s been frakking hard to explain to anyone why Bitcoin makes more sense at$700 than$800 or even$300. However, if we can consistently point to an expanding network, we can presume that Bitcoin’s value should therefore be rising. This does not allow us to say that Bitcoin’s current price, and its requisite swings, match its inherent value. In fact, I think that we can presume that they do not. According to Coinbase, Bitcoin spiked from$208 at the start of November to$1,049 on the first of December. If we assume that Bitcoin’s network effects gave its exchange rate (currency) or asset value (equity) a proper valuation at the start of the month, we can either argue that its network became (roughly) five times as valuable in the month, or that investors overbid Bitcoin. Its ensuing price slump would point towards the latter. I’ve correlated the price of Bitcoin to its current news volume a few times,
Original Link: http://feedproxy.google.com/~r/Techcrunch/~3/2w_LUQDwrWs/
Divining The Underlying Value Of Bitcoin
Business Insider’s Joe Wiesenthal today published an interesting piece on Bitcoin, partially responding to Paul Krugman’s somewhat inscrutable recent blog post that called the cryptocurrency “evil,” and partially answering the question of why Bitcoin has value. It’s been a topic we’ve been discussing for months, making Wiesenthal’s argument worth digging into. He breaks Bitcoin into three interrelated characteristics that support one another: It’s a currency, equity, and a social network. Bitcoin acts as a currency because you can use it as a generic exchange medium in lieu of dollars and other traditional currencies in a growing number of places. Bitcoin also at least behaves as an equity, because the more people whouse and accept it, the more the value of each coin — at least thus far — generally rises. Interestingly, Bitcoin’s ability to act as a currency and an equity are both predicated on its network effects.Wiesenthal puts this succinctly: “Strong, robust network effects are crucial for making the whole thing work.”He links toAntonis Polemitis who makes the same argument: “If people stop using bitcoin, its intrinsic value is zero. Its value is 100% derived by the fact that it is a network.” If we view Bitcoin’s value as a currency and an equity as supremely predicated on its strength as a network, we can then state that its value rises and falls with the strengthof that network. This means that Bitcoin’s value is something that we can therefore better understand. The gist is that it’s been frakking hard to explain to anyone why Bitcoin makes more sense at$700 than$800 or even$300. However, if we can consistently point to an expanding network, we can presume that Bitcoin’s value should therefore be rising. This does not allow us to say that Bitcoin’s current price, and its requisite swings, match its inherent value. In fact, I think that we can presume that they do not. According to Coinbase, Bitcoin spiked from$208 at the start of November to$1,049 on the first of December. If we assume that Bitcoin’s network effects gave its exchange rate (currency) or asset value (equity) a proper valuation at the start of the month, we can either argue that its network became (roughly) five times as valuable in the month, or that investors overbid Bitcoin. Its ensuing price slump would point towards the latter. I’ve correlated the price of Bitcoin to its current news volume a few times,Original Link: http://feedproxy.google.com/~r/Techcrunch/~3/2w_LUQDwrWs/
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