Does Bitcoin Have Intrinsic Value?

Bitcoin is a tough nut to crack. I get it. So in this article, I’ll break it down in a way that’s simple, clear, and easier to understand.

If you’d rather watch than read, check out our 10-minute YouTube video:

What is Fiat Currency?

Before we get into Bitcoin, let’s talk about the money/currency we are familiar with and already use in our daily lives - the rand, the dollar, the euro. It’s called “fiat currency.”

Here are three key features of the Fiat system:

1. Control: Fiat money is issued and managed by a country’s government or central bank. We entrust them to preserve the value of our money and use our taxes wisely.

2. Supply: Many people still believe money is backed by gold, but this system was abandoned in the 1970s. Today’s money is not pegged/linked to anything physical, which means governments can (and do) print more of it whenever they feel the need to.

3. Transparency: Most democracies have national budgets and independent audits to promote compliance and transparency. However, the average citizen cannot effectively track how their tax money is spent.

In a nutshell: Fiat allows for economic flexibility, which can be a great tool if managed correctly. For example, central banks can decrease interest rates and stimulate the economy in times of crises (such as COVID19).

However, Fiat also lends itself to potential abuse and mismanagement, as we’ve seen in countries like Zimbabwe, Venezuela and Argentina.

Why Was Bitcoin Created?

Bitcoin was born during the 2008 financial crisis when trust in banks and governments hit all time lows. The creators of Bitcoin highlighted the pitfalls of fiat currency:

• Centralized: One point of failure.

• Unlimited supply: Potential for excessive money printing which leads to hyperinflation.

• Transparency: What if funds go missing or are not spent as the budget suggested?

So they designed Bitcoin to be:

• Decentralized: A new kind of money that no single institution can control (almost like digital gold).

• Limited supply: Only a limited number of new bitcoin entering the system every day.

• Transparent: Every transaction is publicly recorded on the blockchain.

That sounds pretty good, right? But for most, Bitcoin has always just been “magic internet money” without any utility or actual value. So, let’s address these two very important questions:

1. Can Bitcoin be money?

2. Does it have intrinsic value?

Can Bitcoin Be Used As Money?

To figure this out, let’s look at the functions of money:

1. Medium of exchange: Can I use it to purchase goods and services?

2. Unit of account: Can I price things in it?

3. Store of value: Will it hold its value over time?

4. Trust: Do people believe it has value?

Current system: Fiat

• Medium of exchange: YES - we use rands to purchase goods and services.

• Unit of account: YES - prices of goods and services are set in rands.

• Store of value: NO - fiat is not scarce - it has an unlimited supply and loses value every year via inflation.

• Trust: YES - both the current buyer and seller trust that their money has value.

New potential system: Bitcoin

• Medium of exchange: YES - it can be used to buy goods and services.

• Unit of account: YES - anything can be priced in Bitcoin.

• Store of value: TO BE DETERMINED - it’s scarce (limited supply, inflation <1%), but it’s still very volatile due to its speculative nature. As Bitcoin matures, it should become much more stable.

• Trust: TO BE DETERMINED - Mass adoption will likely depend on financial integration, reducing volatility, and building regulatory clarity.

The Big Question: Does Bitcoin Have Intrinsic Value?

What is intrinsic value? It’s the “true” or fundamental value of something - the value it has in and of itself.

Here’s the truth: money itself - whether Rands, Dollars, Euro’s or Bitcoin - has no intrinsic value. It’s simply a tool, a medium used to exchange for things that do have value: goods and services. So instead of thinking about Fiat or Bitcoin as “money,” let’s reframe them as monetary systems - two different networks designed to facilitate value exchange.

On paper, the Bitcoin Monetary System appears to be more robust and sophisticated than the Fiat Monetary System. But herein lies the catch: Any system requires adoption in order to provide “value” to its users.

For example, if you’re the only person on WhatsApp, who are you going to message? And who’s going to message you back? Does that mean WhatsApp has no intrinsic value? Of course not.

WhatsApp, as a platform, can offer incredible value, but without people using it, it does not provide any value to society. Stated otherwise, if SMS and WhatsApp are both available in the market, but everyone sticks to SMS, WhatsApp will be worthless (even if it is, in essence, a superior product).

When it comes to money, trust is everything. So, if you’re a Bitcoiner, here’s the bet: Over the next decade, trust in the Fiat system decreases, and trust in the Bitcoin system increases. Out with the old, and in with the new. Can the world leave behind its current system and adopt another? I guess we will find out in time.

The question is… where are you putting your money?

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Ingrid Kluckow

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