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Another Way to Think About Bitcoin's Value

One’s opinion on the value of bitcoin depends on one’s definition of value, as it is with anything.

This essay will clarify a prevalent assertion regarding bitcoin—that “bitcoin has no intrinsic value.” Two preliminary things to note. First, this is not used merely as a normatively neutral descriptive statement; it’s stated as a criticism. It usually appears in the following kind of argument, often with premises elided: it’s bad to lack intrinsic value. Bitcoin lacks intrinsic value. So bitcoin is bad. Or maybe: it’s not worth investing in things that lack intrinsic value. Bitcoin lacks intrinsic value. So, it’s not worth investing in bitcoin.

Second, “intrinsic value” has a particular meaning here—one that’s used in investing. Owning bitcoin is often put in contrast to owning stock in a company that produces a good or service. In virtue of the company producing a good or service and receiving money for the good or service, stock in that company is said to have intrinsic value. Methods of calculation of the intrinsic value of a stock usually involve calculating the value of the assets the company has and/or the expected future earnings. Bitcoin is not a company and produces no goods or services—so it lacks intrinsic value. So goes the criticism.

Rather than argue that bitcoin has intrinsic value or that this usage of “intrinsic value” is illegitimate, let’s consider a different way of thinking about intrinsic value—one that we’ve inherited from Aristotle, Kant, and Mill. This way of thinking about intrinsic value will guide us as we consider what kind of value bitcoin does have, and what gives it that value.

In the traditional way of thinking about intrinsic value, the intrinsic value of a thing is the value that it has in itself—that is, not in relation to anything else. That is, after all, what the word “intrinsic” means. The contrast is extrinsic value, which is the value a thing has in virtue of its relation to other things. It’s easy to think about the extrinsic value a thing has, because you can think of the value it has for you. For example, a bicycle has extrinsic value because it gets me from place to place. Wine has extrinsic value because it tastes good. Money has extrinsic value because we can use it to buy other things. Extrinsic value is easy. It’s much more difficult to determine whether something has value intrinsically.

Maybe bitcoin doesn’t have intrinsic value in the sense that investors use the term. But might it have intrinsic value on this understanding of intrinsic value? And if not, does it differ in this respect from stocks and precious metals? We can start to get a handle on this question by asking: on this classic understanding of intrinsic value, do stocks of companies have value in themselves? No. They are valuable only to the extent that the company and the workers are valuable. Then we can ask: do companies have value in themselves? Even here the answer is no. They are all valuable in virtue of their relations to other things—money, customers, employees, products, and so on. Let’s take it even one step further: does anything that any company produces have value in itself? An iPhone, a watch, an airplane, a massage, a tax return, a database, a baseball card—the possibilities abound.

One way to answer this question of anything is to ask, why is that thing valuable? If you take there to be a sensible answer to that question, then that means that you think there is some further thing in virtue of which the original thing is valuable. And so you think that the thing isn’t intrinsically valuable. For example, we can ask why an iPhone is valuable. An iPhone is valuable perhaps in part because it connects us to information and loved ones. So, it’s valuable because it brings about something of value—connection to information and connection to loved ones. If it didn’t do that, it wouldn’t be valuable. So, it’s valuable, but not intrinsically valuable. But even being connected to information and loved ones seems not to be intrinsically valuable, because we can answer “why is being connected to information good?” with “it gives us knowledge” and “it helps us navigate the world” and we can answer “why is being connected to loved ones good?” with “it makes them happy and it makes me happy.” If those are right, then being connected to information and loved ones is not intrinsically valuable—it’s valuable in virtue of making us happy.

In fact, many philosophers think that the only thing that has intrinsic value is happiness. There are a few reasons for this. One reason is that if you ask “why is happiness valuable?” it’s hard or maybe even impossible to answer. You might even assume that the person who asked didn’t know what happiness was. You’d be tempted to say, “It just is. It’s valuable for its own sake.” Another reason is that “It makes me happy” is (when true) always a good answer to “Why is X valuable?”—and we don’t feel the need to follow up with “why is being happy valuable?” A third reason is that it seems plausible that everything else in the world—Apple stock, iPhones, bitcoin, friendship, love, etc—is pursued to the extent that it can bring happiness.

There is, of course, the further question of what happiness is. That’s much harder to define. Some say pleasure, some say a flourishing life, some say the life of a mind in accord with reason—it varies greatly. There are also people who think there are other things that have intrinsic value: friendship, people, God—there are many candidates. Rather than settle that question here, it’s important to note that neither bitcoin nor any other investment would have intrinsic value on any of these theories. You can add anything else you think has value independent of everything outside it and is pursued for its own sake, but we’ll proceed with the limited scope of happiness.

So, happiness and maybe some other things have intrinsic value, and everything else is pursued to the extent that it brings happiness either directly or indirectly.

Bitcoin, then, is not intrinsically valuable. But that doesn’t mean it’s not valuable. In fact, bitcoin shares these features with every concrete material object, and many immaterial things as well—if the above is correct, everything except happiness. So it’s no criticism of bitcoin to say that it doesn’t have intrinsic value, since only happiness does.

But is bitcoin valuable? That’s a different question than whether bitcoin is intrinsically valuable, but it’s a no less important one. If bitcoin is valuable, then given that it’s not intrinsically valuable, it’s valuable in relation to other things. In particular, it’s valuable in virtue of its relation to happiness. So, does bitcoin bring people happiness, whether directly or indirectly?

In order to determine that, we should consider the reasons people buy bitcoin. Some people buy it because their local currency is hyperinflating and they lack access to other stores of value, but they have access to bitcoin. Some people buy bitcoin because their local government censors their transactions, and they can't buy the things they want with their local currency. Some people buy bitcoin because they want to pay for things digitally but distrust PayPal, Visa, and other huge corporations and they don’t want to give those companies their personal financial information. Some people buy it because they think other people will find it valuable and they’ll be able to sell it for more fiat currency than they bought it for. For all of these people, if you ask them why they are exchanging other things for bitcoin, these people are likely to give a series of answers that ends with saying that they think that having bitcoin is more likely to make them happy than having the other things. And these people number in the millions.

Clearly many people think bitcoin is valuable. They reveal this by exchanging things like their government-backed currencies for bitcoin. Some people think index funds and Apple stock are valuable. They reveal this by exchanging things such as government-backed currencies for index funds and Apple stock. But like bitcoin, index funds and Apple don't have intrinsic value. Rather, their value depends solely on what people are willing to pay for them, which is based on their features. In that respect, they're just like bitcoin!

So, bitcoin—like everything except happiness—has no intrinsic value. Bitcoin’s value is determined by how it brings about happiness for the people who use it. Just like everything else.