“Bitcoin has no intrinsic value.” This frequently heard criticism is, for Bitcoin’s critics, the ultimate kill shot — the irrevocable proof that, at its most fundamental core, Bitcoin is nothing but a worthless fraud.
“It’s just code” was the line repeated in doom tones on a recent episode of the terribly misinformed Dave Ramsey’s show. Gold advocate Peter Schiff, perhaps the most repetitively vocal critic of Bitcoin, may not recognize the value of remembering your passwords, but he’s certain that bitcoin has no intrinsic value.
Before we delve into what gold bugs such as Schiff mean when they invoke the term “intrinsic value,” and why I think they’re looking in the wrong place, I’d like to acknowledge that they at least have a moral argument as to a basis of value for their preferred money. This is infinitely better than the arguments of fiat supporters such as Paul Krugman, who wrote “…fiat currencies have underlying value because men with guns say they do.” Thus did the man, who many would tell you is America’s preeminent public intellectual in the field of economics, argue for his preferred currency under threat of murder. Lovely. But Krugman and his Keynesian fellow travelers will soon be reminded that reality operates on reality’s terms.
The Traditional Argument
For purposes of this essay, we’ll examine the traditional concept of intrinsic value as it applies to gold, since it is with regard to gold versus bitcoin that the intrinsic value argument is most frequently invoked.
The case for gold’s value as being backed by intrinsic properties is essentially a two-layered approach: uses and physical properties, with the former deriving from the latter. Gold will always have value, the argument goes, because there will always be a demand for jewelry, gold-plated consumer and industrial electronics, medical applications, satellite shielding components and so on. This is because the nature of the gold atom produces superior…