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Is Bitcoin the future? Show more Show less
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Since its inception since 2008, the world has looked at Bitcoin with cautious fascination. In 2013 Bitcoin started to generate interest as investors and buyers explored the possibility of Bitcoin emerging as the predominant international currency. The bursting of the Bitcoin bubble several years later did much to dampen its outlook but is Bitcoin the future of money?

No, Bitcoin isn't the future Show more Show less

Bitcoin lacks many of the characteristics necessary for a currency to function. It holds no inherent value, offers no stability as a savings tool, and has no liquidity for use as a purchasing vehicle.
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Bitcoin has no intrinsic value

Without the backing of a central bank, Bitcoin has no intrinsic value and could theoretically be worth $0.
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Context

The most successful currencies can be reliably counted on to maintain their value. Through the backing of a central bank, the fiat currencies (currencies issues by a central government, not backed by a commodity) receive a value based on the public trust in that central bank/government. In cases where that trust diminished to zero, the actual value of the materials involved in the production of banknotes and coins have a value (albeit tiny). Therefore, government-backed currencies can theoretically, never be valueless.

The Argument

Bitcoin is a decentralized currency. It is not backed by any central bank. Therefore, it has no value and is not linked to public confidence in a monetary system. Without value or the backing of a central bank, Bitcoin is intrinsically worthless.

Counter arguments

Many asset classes have no intrinsic value yet still command high and relatively stable prices. The global diamond industry is a glaring example of this. Diamonds have no intrinsic value, benefit, or function. Their entire value is dependent on supply and public demand. Yet diamonds are a relatively stable asset class. This is because, in economics, an item holds value for two reasons: utility or scarcity. Exactly like diamonds, Bitcoin has value because of its scarcity. There is not an infinite supply of bitcoin. The cryptocurrency has a cap of 21 million Bitcoins.[1] In fact, this makes Bitcoin more valuable than many precious metals and minerals. Because it is man-made, there is no possibility of a hidden Bitcoin treasure trove being discovered and flooding the market.

Premises

[P1] Bitcoin is valueless. [P2] Therefore, its value is entirely dependent on public demand. [P3] If that demand falls to zero, the currency can be worthless. [P4] Without intrinsic value, Bitcoin will always be riskier and more volatile than fiat currencies. [P5] Therefore, Bitcoin is not the future.

Rejecting the premises

[Rejecting P2] The price of Bitcoin is not solely dependent on demand. It is also dependent on scarcity. [Rejecting P4] Bitcoin's scarcity gives it value.

References

  1. https://www.cnbc.com/2018/01/16/skeptics-say-bitcoin-has-no-value-heres-why-theyre-wrong.html
This page was last edited on Monday, 16 Mar 2020 at 10:51 UTC

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