I am indeed having difficulty answering this:
Why does a bitcoin have an economic value, such that there are people willing to trade US$ (or any other traditional currency) for thesis virtual numbers?
What did the creator of Bitcoin do at the begin to give it economic value?
Satoshi created a system that:
- Permitted users to trust transactions without having to trust any single entity.
- Opened it up so that anyone could participate and exchange computation power for Bitcoins.
- Is designing with a stationary size (21 million Bitcoins), he created an incentive for users to get involved early while Bitcoins are relatively cheap to generate, there is less risk of future inflation reducing the value of early adopters.
Bitcoins have value because they are useful. They have useful properties.
This reaction expands on this at length.
Spil for what the author wrote te the very beginning, you can read the announcement of Bitcoin v0.1.
Bitcoin wasgoed worth very little for the very first year. Ter this thread, written 16 months after Bitcoin’s launch, you can read the conversation leading up to a man buying Two large pizzas for Ten,000 BTC.
Bitcoins have value for one elementary fact: Two or more people agree they do.
The Proof of Work system ter mining proves that a number of people agree on this, and agree on a method to account for transactions inbetween them.
The wasgoed no particular financial incentive. The system wasgoed proposed, and people agreed that it would work. They proved they agreed by adding their CPU power to the network. This began to add value to bitcoin.
The CPU power doesn’t add value, but the proof of work that it computes does, because this proves the existence of the agreement inbetween the interested partied. The agreement is the code of the reference implementation of bitcoin. This agreement is the fundamental value te bitcoin.
Once the agreement is established, people are able to use it to trade for other things (dollars, euros, goods, services), establishing its relative purchasing power.
At the embark the creator promised utility of Bitcoins (effortless payments without banks).
Since others believed that, their belief instilled a market value ter the very first Bitcoins.
From my perspective the controversy about this question is the fact that someone can’t price a product without an exchange rate and vice versa. This indeed seems like an insolvable problem but there is one plain response: every currency or monetary territory has to begin with either an exchange rate (to find suitable prices for products) or initial priced products (to find an suitable exchange rate).
Since te the early beginning of BTC almost no Supplier of Goods &, Services accepted BTC spil a payment the initial product traded were BTCs themself (vice versa: Foreign currencies were the very first product). Spil stated by other answers before: BTC have an intrinsic value which is simply their usability transacting value. For this value a price can lightly be found by bringing together supply and request via an exchange. Since liquidity and market capitilisation grew transacting value became more and more feasible.
TL,DR: It wasgoed not its creator who did that. Bitcoin’s economic significance wasgoed gained similarly to any other money, but here, it embarked with pizza.
Let mij response by refuting the most persistently recurring false argument:
Crypto money has an intrinsic value created by clever vormgeving to provide utility te the form of safe/free/practical/. (i.e. “valuable”) transaction medium.
[And any variants of this, including the accepted reaction, unluckily.]
Is it true? Of course. Does it explain Bitcon’s trade value? No. How could it?
Intrinsic-value arguments consider only the system, the medium itself, failing to take into account the “real thing”: its value-measuring function, the actual listig that connects it to the (everzwijn switching conditions of the) real world, where the actual economy works. (And excluding the real-world economy from the equation makes it unlikely “by definition” to reaction questions like: “how does it build up real economic value?”)
Confusing the market value of Bitcoin (or any other money) with the utility value of the framework itself is fully missing the most significant point. It’s the same fallacy spil telling that
“the US dollar has its market value because it’s a handy way to facilitate exchanging market value te convenient transactions”
This should already sound vaguely suspicious, but one could instantly see the problem, when exchanging USD to other currencies. Shouldn’t thesis plots be just boring flatlines then?
How many times have you seen those charts being explained by daily fluctuations ter the usability/efficiency/vormgeving properties of the federal reserve system’s machinery or the quality of coins and notes or fluctuations te the safety of credit card services etc., instead of real economical reasons.
So, when looking at the same thing from that angle, everybody agrees that switches ter currency prices (values) are caused by switches ter real economic processes, events that affect actual markets (i.e. people. ), rather than switches te the measuring contraption (money), that only exists to opbergmap real market values to abstract numbers.
But then it directly implies that market value of any currency (crypto or fiat or commodity) comes from the market, not from the money itself!
Just see for a minute the wild fluctuations of different crypto coins real-time at an exchange. Those instantaneous value switches are clearly not caused by corresponding switches ter any inherent properties (like “fluctuations of clever vormgeving”, or “momentary switches of hash safety” or “degree of free access” or real-time network stream etc.).
Those value switches toebijten te the minds of individual traders, because that’s where markets work, i.e. where all the market values are created.
Spil others correctly noted: it all boils down to trust (which is, Omzetbelasting, just a glorified word for a basic cooperative spel strategy factor).
Market value of (any sort of) money emerges from bootstrapping the network effect of mutual trust:
The very first time someone trades a money token to anything else(!), the initial exchange value for that money is (irrevocably) established.
(See @DavideC’s nice comment, right under the OP, about very first selling a pizza for BTC!)
And spil soon spil word goes around about such a transaction being possible, a market is created around that money, too.
And the next transaction will be priced based on skill about the previous ones (providing a quasi-continuous function for trade value switches).
Those value switches depend on a entire bunch of (known and unknown) factors.
Spil long spil there’s faith that another transaction is doable with that money, its market will be alive.
So, to recap: my money has value to mij if (and only if) I can trust that people would give mij stuff for it. And those others need to maintain the same trust, too, to keep the market alive, and they also need to communicate decently to keep market values ter sync with reality.
It’s still true that a viable money system does have reasonable utility value, too, which is, indeed, inherent to it. Part of that value may come from the scarcity of a commodity (like gold), the assures of a powerful government, the well-developed infrastructure of banks, or certain mathematically proven properties of an automated system etc.
That inherent utility value is even a factor that may affect the trade value of the money! (See e.g. how latest Ethereum ICO overloads made the market value of Ether plunge, or see how juicy-looking coin startups “backed” with the promise of shiny fresh tech ideas tend to overprice the market value of their tokens.)
However, thesis effects are only childhood diseases of the fresh digital money world: spil soon spil the technological problems get step by step ironed out, the excitement around them will also fade, affecting the market value less and less. If everything goes well, the money system just gets out of the way: spil nobody truly cares how much minting a dime actually costs, or what database backends a handelsbank transfer goes through, nobody would get high from the world “blockchain” a few years from now.
And to vividly illustrate how irrelevant those “inherent” vormgeving or institutional properties of a money system are ter terms of its actual market value, just recall that shells, like money cowry could joyfully hold any real and arbitrary trade value, despite having none of the sophistication of a blockchain currency. But it’s very likely best demonstrated by the most arcane monetary system of all time: the Rai stone “coins” of Micronesia. 🙂