Bitcoins have value because people think they have value, but why do people think they have value? They’re not backed by any state, business, or person.
What is your definition of ‘has value’?
Bitcoin has value because the person who has some thinks it’s valuable and for as long as someone else is willing to accept it as payment for goods or services, it is valuable. This is pretty much the definition of fiat currency.
Bitcoin may not be backed by physical substance such as precious metals or a government’s declaration of value, but they are produced by transforming electricity into currency. Last time I looked at my electric bill, I was reminded that electricity is valuable stuff. One of the concerns with Bitcoin is that at some point in the future, the cost of electricity to run mining computers will exceed the value of the currency.
A bitcoin has value because I can buy stuff with it. And I can also exchange it into various other currencies.
Why can I do that? Ask the people willing to take the stuff. I never would for anything!
The Master speaks: http://www.straightdope.com/columns/read/3120/is-bitcoin-the-future-of-money
Do “Disney Dollars” have value? My grocery store won’t take 'em…but Disneyland will.
Does a credit card have value? I just bought some stuff using one.
Someone to back it … well its better when its a government who does the backing.
Worse, its also promised that more and more bitcoin will be produced. The promise is that the value will deflate. Why would they be worth so much now ?
It was a bad sign that the value shot up because of a drug bust. It means its strongly linked to drug sales.
Better for whom? Certainly, it’s better for the government.
None of the big rises in the price of bitcoin were correlated with a drug bust that I know of. Cite?
As noted above, the cost of mining bitcoins will eventually exceed the value of the bitcoins. Even if it never did, there are a finite number of bitcoins available to be mined. After the last one is mined, there won’t ever be any more, unless a majority of the owners of bitcoins decide to allow more to be created.
[li] Bitcoin has value because people think it has value.[/li][li] People think it has value because they think (correctly) that other people think it has value.[/li][li] All those other people think it has value because they can, in fact, buy stuff with it from other people who think it has value.[/li][li] The fact that people who think it has value are willing to sell stuff for Bitcoin causes Bitcoin to, in fact, have value.[/li][li] The fact that Bitcoin, in fact, has value causes people to think it has value.[/li][li] The fact the people think Bitcoin has value causes other people to observe that people think Bitcoin has value.[/li][li] Go to Step 1[/li][/list]
Yes and no. Value doesn’t have to be universally accepted. Disney Dollars have value, but in limited circumstances. Heck, the same could be said for any currency. A grocery store in Namibia might not accept the US dollars in my pocket, but a store in Manhattan certainly would.
A credit card doesn’t have value; rather it’s a source to allow you access to something that does. It’s a way to get dollars (or whatever currency). I guess the card itself has value as a tool to, say, remove a sticker or jimmy open a door.
It has relative scarcity and works for people as a medium of exchange without having to deal with international transfer fees, exchange rates and so on at the point of making a transaction (and the anonymity thing is a bonus for some).
I am confused most by the origination point of a bitcoin. Does the one who originates the coin receive full value for simply producing it?
One “mines” Bitcoins - a process involving lots of computation.
Isilder was likely referring to the Silk Road bust. Though not a “drug bust” per se, it’s pretty close.
From what I’ve read, the recent increase in value for Bitcoins is manly due to speculators hoping to get rich quick (basically looking for the next Apple or Facebook).
As for as people who actually use Bitcoins to buy things, this seems to be primarily drug traffickers on places like Silk Road. Legitimate purchases appear to be only a small minority of transactions.
Given that there is a built-in limit to the number of Bitcoins that will be created, I’m wondering about the ability of governments or other hostile parties to “lock up” Bitcoins to keep them out of circulation. Consider the following scheme:
A government (let’s say China) buys up as many Bitcoins as it can, using straw puchasers with no obvious link to the government. The computers that are used to purchase those Bitcoins (let’s say they’re cheap laptops) are then physically destroyed, rendering the Bitcoins purchased with those computers inaccessable.
You don’t even need governmental activity to “lock up” or lose Bitcoins.
Last year, a hard drive containing the key to someone’s digital wallet with 7,500 BTC was thrown away. At today’s rates, that’s about $6.4 million buried in a landfill. At the time he discovered what he’d done, the drive was worth closer to $8 million. When he bought the BTC in 2009, they were worth about six bucks.
Let’s say I discover that harddrive. How long does it take me to liquidate those bitcoins into US dollars?
I’m aware of the Silk Road bust. But the price of bitcoin fell when it got busted. It didn’t rise as the post I responded to claimed.