Another argument is that Bitcoin is scarce. Ultimately, we know that there will never be more than 21 million Bitcoin.

Scarcity is a key and often-cited predicate of things with intrinsic value, like gold. But scarcity alone is simply not enough to prove intrinsic value. There are many things that are scarce—like quality superhero movies—that aren’t intrinsically valuable. Just because Bitcoin is rare, doesn’t necessarily make it intrinsically valuable either.

So, if Bitcoin isn’t intrinsically valuable, does that make it worthless? And where does that leave the world’s most famous cryptocurrency in relation to traditional money?

The good news is that fiat currencies also struggle with intrinsic value.

Fiat currency is no different

There was a time when the US dollar—chief of all fiat currencies—was considered to be intrinsically valuable, but times have changed.

The gold standard was a system where a government’s currency was formally tied to the value of gold. Several countries have made use of the gold standard in the past, with the UK putting an end to its use of the gold standard in 1931, and the US severing all ties with this policy in 1973. As gold is considered intrinsically valuable—a debate for another time—fiat currencies that were tied to its value were considered in the same light.

Yet, without an intrinsic value sitting behind these currencies, the only real source of value they derive comes from consumer confidence. The US dollar, the pound sterling, or the euro, are all as valuable as our confidence in them.

As The Economist pointed out recently, Nobel prize-winning economist Thomas Schelling argued that “people gravitate towards focal points without formally agreeing to do so […] gold bars—or bitcoins—have value if enough people tacitly agree that they do.”

So, even if Bitcoin doesn’t have any source of intrinsic value, it’s important to remember that this isn’t necessarily that consequential. Intrinsic value is hardly a luxury of fiat currencies either.

Via: Decrypt