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What is the underlying value in BitCoin?

I seem to be seeing a lot of people questioning the value of BitCoin as a legitimate currency. The proponents of the currency don't seem to be doing a good job of explaining it... now I'm no economist but for some reason its pretty obvious to me how it works...

Here goes...

All trading standards resolve back to the basic principle of scarcity. Wheat is not as highly valued as gold due to scarcity. Scarcity is the result of demand exceeding availability. If Gold was as plentiful as grass it wouldn't be used as the basis of trade. All trading mediums are a surrogate for a much larger set of traded goods and services. A days work gets 500 pieces of paper called a dollar. That five hundred pieces of paper buys a few days rent and some groceries.

With BitCoin the scarcity is defined by the limited number of coins that are in circulation. The fact that there is a community that is willing to trade in what amounts to unique numbers is no different than a community that wants to trade in piece of paper.

The reason that dollars are called currency and technically no longer can be called money is because money is by definition linked to the gold standard. 1 Gold coin use to equal the equivalent value of that gold in terms of how much it weighed. When paper money came in, the gold was stored away but each dollar was valued at the equivalent weight of stored gold. Since most money systems became currencies and started being traded based on international trade demand (ie scarcity) the gold standard has become meaningless.

I may be wrong about this, but this is the way I understand it all and hope it helps you to make sense of this new digital currency thing thats happening... I'm waiting to see how it gets abused but its inevitable that it will stabilize and become a real currency.

Comments

  1. You are saying that value is defined by supply and demand but I think you forgetting usefulness. For something to have value it needs to be useful.

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    Replies
    1. Well I assume that most people would understand the value of an international unregulated open money system.. that is the VALUE PROPOSITION of BitCoin... but the value of Bitcoin as a currency is not a value proposition equation but more its reliability as an accepted reliable token of trade... thats what my article was about.

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  2. I believe in time, bitcoin’s volatility will stabilize. It’s too early to throw your prejudice over a newly established technology. Bitcoin future is still far from us. Anything can happen, look at the price—it deflates and inflates form time to time.

    Philip Jones
    Betcoin™

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