What Gives Bitcoin It’s Value?

With the price of bitcoin rising and falling in a dramatic fashion, some people are raising questions about the cryptocurrency’s intrinsic value. The digital currency is different than any other fiat currency introduced before it because it has no backing. There’s no country standing behind it, and there’s no physical entity giving it its value, like gold or silver.

According to Paul Krugman, a contributor to the New York Times, “to be successful, money must be both a medium of exchange and a reasonably stable store of value.” He goes on to say that while many believe that bitcoin is a great medium of exchange (in an ever-evolving digital society, why wouldn’t it be?), no one can seem to clarify what makes bitcoin stable or gives it any intrinsic value.

This lack of explanation is probably what led Founder and CEO of Business Insider Henry Blodget to switch gears on the cryptocurrency. “There is no intrinsic value,” he said during an appearance on CNBC’s Squawk Alley. “If anybody is persuading you that it should somehow be related to some GDP or Gold…put down the Kool-Aid and back away.”

Now, to claim that bitcoin has no intrinsic value is an overreach. If it didn’t have any value, people wouldn’t have started paying money for it in the first place and we wouldn’t actually be having this discussion. But these harsh words do serve a purpose. They’ve opened up the floor to discussions that need to be had. What will keep this digital currency afloat? What gives Bitcoin its value?

I mean, if you were going to put your money into something, wouldn’t you want to know the answer to these questions?

Some people believe that it is Bitcoin’s utility that gives it value. It’s ability to act as a store of value and thus as a medium of exchange make it valuable. Others think it is the technology behind bitcoin, the blockchain, which holds all the value. In reality, it’s much simpler than either of those. Bitcoin’s intrinsic value comes from the fact that it can be mined.

New bitcoins enter the market as people process and store blocks of transactions to the blockchain. This is a process called mining, where miners are motivated to compute the data as quickly as possible in order to earn as many bitcoins as possible. While you need certain programs and machinery to successfully and continuously mine bitcoins, technically anyone can do it. Forbes calls this the “missing piece of the puzzle” surrounding bitcoin.

The problem with this? Bitcoin’s intrinsic value can be changed by whoever controls the mining process.

This isn’t necessarily a problem right at this moment, but it could potentially become one. ReviewBitcoin.com thinks the problem with bitcoin is that there’s a timeline for when a controlling majority will be in play in markets. And if 51% of the product is controlled by a single entity or several entities working together, they have the ability to completely change the market and the currency’s intrinsic value as they see fit.

Hey, we never said you’d like it when you found out what the intrinsic value was – only that there was one.