EP10 Narration - Author - Conner Brown - Bitcoin Has No Intrinsic Value — and That’s Great.

Welcome back to the bit by bit podcast. In today's episode, I don't actually have a guest. I'm trying something new. From now onwards, I'm going to try and collect the most important articles in and around Bitcoin and Austrian economics.

I'll put out a warning. Firstly, I'm actually not the best reader. I'm going to do my best. Hopefully I'm going to get better at reading. You're going to learn something about Bitcoin and Austrian economics.

We'll learn together. So in today's episode, I'd like to go through Connor Browns. Bitcoin has no intrinsic value. And that's great. He's got some brilliant articles. I'm going to go through all of them. This is just the first one.

I'm doing the reading because having the audio visual has really, really helped me. I'm sure I'm not the only person out there that would benefit from this. I hope I can pay it forward in some way. If I can try and break some of these things down, I will. So if anyone has any questions, feel free, send me an email.

If I can answer it, I will. If I can't answer it, I'll reach out to the authors and just clarify because I want people to understand what they're saying. Ah, before I start, actually, my final, final warning and then we are starting is that I'm not going to have time for any editing. My plan is to have at least one article a week.

So I'm going to do my best. I'm hoping that my reading is going to get better over time. I'm hoping that my useless, dyslexic, line skipping eyes can somehow sort their life out.

But bear with me and I really hope you learned something. Bitcoin has no intrinsic value and that's great by Connor Brown, published May 8th, 2019.

Intrinsic value. Bitcoin skeptics love to talk about it. Their argument is typically as follows. Bitcoin cannot be used as a money because it does not have any intrinsic value as a commodity.

For something to be a viable money, it must first be accepted and used for some other commodity purpose, intrinsic to the item, then slowly become a money over time. For example, because gold can be used in jewelry and electronics, people naturally stockpile it to store value.

Previously, Bitcoiners have made several compelling arguments against this on the ground there. One, intrinsic value is subjective and two, Bitcoin does have intrinsic value as a good for censorship resistant payments.

Here, I will argue that Bitcoin skeptics are right. Bitcoin has no intrinsic value as a commodity, but that's a great thing for Bitcoin and the rest of the world.

Inside the mind of a skeptic, intrinsic value is an old idea. Even Aristotle wrote about the importance of money being intrinsically useful and easily applicable to the purposes of life.

For example, iron, silver and the like. It's no wonder that this idea has persisted. Commodity value has been essential to humankind for thousands of years and is directly evident to the laymen.

Despite its ancient origins, intrinsic value is not directly linked to monetary functions. A good money needs to be many things. Portable and easy to trade, scarce and durable to store value.

Fungible and divisible as a unit of account, but an alternative commodity use is not one of them. So why do many critics claim money needs intrinsic commodity value?

There appear to be two main reasons. Appeals to history. Many skeptics denounce Bitcoin's lack of intrinsic value simply because they are accustomed to stores of value, doubling as commodities.

Put simply, they are living in the past. Many have made this argument about previous technological improvements by wrongly assuming that previous trends would hold true.

The fact that all previous forms of value had a physical form does not mean a new store of value, must also be physical. People were making similar arguments about physical shopping during the rise of the internet.

Here is a hilariously bad take from a Newsweek contributor in the 1990s, arguing that because we've always had physical sales in the past, physical sales will not be replaced by the internet.

Bitcoin skeptics claiming money needs to be a useful physical commodity will seem equally ridiculous a decade from now. In fact, history shows that commodity value is far from a requirement for a money.

Nick Zabo explains in the beginning of his classic piece Shelling Out, the origins of money, that societies have used otherwise useless items for storing and communicating value.

These glass beads had many strong monetary properties and were used for trading throughout Africa and parts of North America, but they had little use as a commodity.

The rise stones used by YAP people are another example of store of value without commodity use. So you can't see this now, but I'm just looking at basically like a little bracelet with these glass beads going around it, the sort of thing that you'd get on holiday.

Very nice though, very nice. Today, many who voice concerns about intrinsic commodity value trace their arguments to Austrian economists such as Menge, Mises and Rothbard.

These writers strongly emphasize the importance of money and its impacts on society. For them, commodity value and money have been inseparable since their earliest writings.

One of Menge's seminal works on the origins of money begins by describing money as the fact of certain commodities becoming universally acceptable medium of exchange. Part one, Mises later built upon this understanding in the theory of money and credit.

Mises writes, "We may give the name commodity money to that sort of money. That is, at the same time, a commercial commodity and the name fiat money to money that comprises things that are a special legal qualification."

Following in the mental footsteps of previous Austrian economists, many critics apply these outdated frameworks to attack Bitcoin. Niels van der Leiden, one of the first Bitcoin skeptics, when a Bitcoin was 77 cents, rejected Bitcoin for this very reason.

He claimed it would not work because nobody could do anything with them but trade them. Therefore, he concluded, "Bitcoin's had no use as commodities and would not work as money."

It's poor from him that he's really lemself down. While commodity and fiat monies were the only two possibilities for early Austrian economists outside of credit instruments, time have changed. In our digital age, the distinction between commodity and fiat money has lost its value.

It should be immediately apparent that Bitcoin does not fit neatly into this dichotomy. It has no use as a physical commodity but also does not exist through any legal decree.

We can now hold and trade digital money wholly independent of the simple force of the law. Instead, Bitcoin's monetary properties are guaranteed with rules and logic embedded into its coded DNA.

Through this, purely digital existence, Bitcoin lives as money free from the restraints of the physical world, solving the hard money paradox. In fact, if the skeptics had done their homework, they would realize that Mises was a Bitcoin at heart as well.

He recognized the problems inherent in commodity money but saw gold as the best of bad choices. In the theory of money and credit, Mises laments that even a monetary system based on gold is still subject to considerable disadvantages.

Regarding not only the fluctuations in the supply of money and the demand for it but also fluctuations in the conditions of production of the metal and variations in the industrial demand for it, page 238 for reference.

Mises correctly points out that commodity users of money create price distortions as fluctuating industrial demand push and pull on the shared supply. Hard money has always been associated with unique physical attributes good for money but also other industries.

In this regard, gold's incredible versatility across many different industries magnifies this harmful effect. The physical world also brings other monetary restraints.

Something found in nature cannot be routinely distributed over time. Here, Bitcoin's predictable periodic emission allows for supply calculations decades into the future that are not possible outside the digital world. A physical item supply also cannot be audited.

At any moment, someone could find previously unknown amounts of gold and radically dilute ownership without current holders knowing about the sudden changes in supply, similar to how carry shells were secretly inflated by European traders to the detriment of African tribes.

With Bitcoin's digital nature, anyone can audit the entire supply and know the exact amount created at any time. With these advances, it's silly to cling on to the Austrian economists giving advice for their unique historical moment.

Those writers were not laying down universal constants, even though they realized their limits and hoped for better forms of money than precious metals, new circumstances require new theoretical foundations and Bitcoin gives us just that.

Bitcoin has the key to unlocking captured utility. In our present day, it just so happens that the best stores of value are also those that have some element of utility as commodity.

The key distinction here is that gold, real estate or any form of commodity money is not a store of value because of its utility as a commodity, but despite that utility.

When someone decides to hold gold or any other asset for a monetary purpose, they make a clear and conscious choice to use it for its wealth storage properties instead of use as a useful commodity.

Rather than creating electronics parts or jewelry, holding a gold bar puts gold monetary properties to work. While this decision may appear innocuous, this can bring harmful consequences.

Large numbers of people storing their value in a specific commodity with hopes of wealth storage often leads to extreme waste and speculative bubbles. Real estate is a particularly egregious example of this effect. Today, speculators choose golden concrete to protect their wealth.

Developer Michael Stern explains that global elite is basically looking for a safe deposit box and many have decided to invest in Manhattan property to store their funds.

By doing this, they are using the luxury apartments for saving instead of for living. As a result, journalists noted, according to the Census Bureau, throughout a sweeping stretch of Midtown from 49th to 17th Street between Fifth Avenue Park.

Nearly one in three apartments is completely empty at least 10 months a year. Similar trends are spreading through large cities worldwide as the Guardian reports.

The trends fur the world super rich to invest in prime London property as a way to safeguard their wealth without the need to secure a rental income has meant the number of empty houses in Kensington and Chelsea rose 22.7% over the same period.

An 8.5% since 2015, as the elite continue to pull wealth into these commodities, bubbles begin to rise to the top. A recent report by UBS shows just how risky this has become.

Not only are properties sitting empty using homes as a significant store of wealth destroys healthy market incentives for new house development. San Francisco and the rest California housing market are obviously examples of this phenomena.

Below is a map illustrating San Francisco zoning regulations. All areas shaded in yellow are limited to building height of 40 feet. So again, just looking at a map of San Francisco and it's very yellow.

Basically just a map, I would say, I don't know, 95% of it is yellow and very small amounts of red. So yeah, those buildings are limited to 40 feet. These regulations are a clear impediment to building new affordable housing to meet demand.

Given the repercussions on the average residence and rent prices, why do they exist? One large cause stems from existing homeowners lobbying for artificial restrictions on supply to preserve their wealth.

A recent report by Legislative Analyst Office for California noted that residents may see new housing as a threat to their financial wellbeing.

For many homeowners, their home is their most significant financial investment. Existing homeowners therefore may be incentivized to limit new housing because they fear it will reduce the values of their homes.

Because the average buyer does not have a reliable store of value in their money, homes are considered by many to be the best place to safeguard one's wealth. This naturally causes homeowners to then lobby to constrict home supply so their precarious wealth is not diluted.

In this sense, real estate store of value properties depend on artificially generated scarcity. Bitcoin would not solve this problem entirely, but it gives potential home buyers an alternative way to securely store wealth over time.

Allowing people to rethink their financial decisions may ease the pressure against building new homes. With new affordable development, cities would be able to increase their density and improve the quality of life for all residents.

For example, research modeling suggests that if San Francisco were able to increase its housing density, this could significantly reduce the city's carbon footprint, increase the city's walkability and improve the quality of community life,

all while preserving the signature sunny California environment. We've got now a picture of our Peter Schiff. Talked about him a bit on the podcast. He's one of the biggest Bitcoin trolls, hates it, can't wrap his head around it.

I think he owns it. I can't think that he doesn't, but refer to other episodes, but basically we have a tweet here from Peter Schiff saying Peter Schiff and May the 3rd. The ultimate irony in the drop gold campaign is that you can't mine Bitcoin without using gold.

This is just one of the many utilities of gold that Bitcoin promoters deny exist, but while they overlook gold's obvious utility, they ascribe utility to Bitcoin when none exists.

We've got 384 likes there, don't know why it's silly comment, but let's read on. Gold is another example. As individuals sell their gold to buy Bitcoin, gold that was previously held for its wealth storage properties can be put to work in electronics, medical devices and aerospace pursuits.

It can even be eaten. Gold stored around the world can be used to benefit society through cheaper and higher quality products and make previously impossible endeavors much more affordable.

So, when you hear gold aficionados extol its amazing societal uses, they are right, but they are really making a case for digital gold. By acting as a global store of value, Bitcoin unlocks that stored commodity utility, and we've had to set aside because our world has always lacked a pure money.

Final thoughts. Instead of locking up useful resources to store wealth, Bitcoin gives humans the ability to store wealth free from the opportunity costs inherent in storing commodities.

This global, permanent and accessible store of wealth is forming a solid bedrock for future economies around the world. As funds move from other asset classes towards Bitcoin, this newfound supply will create better access for affordable housing, rejuvenate urban environments,

higher quality consumer goods and more. Yes, Bitcoin has no intrinsic value. And for that, we should be thankful.

Right, so let's go through it. I'm going to try and be fairly brief on this one. I hope that made sense to everyone. If there's anything that you're not sure about, like I say, reach out. But I think basically what Con is trying to say here is that Bitcoin can be used as a, well, basically the best form of money.

And that although the value that gold holds for other uses is useful for those uses, it's not necessary for a money. And that actually, if you use Bitcoin instead of gold, you're going to free up more gold to use for those other things, which is useful for society.

And the same thing with housing. It's not that useful for houses to be sat empty with no one in them, just so someone can store their value because the currency that they're using is losing value over time.

So all they're trying to do is put their money somewhere where it's not going to lose value because store of value is one of the uses of money, but it's not really very usable when we're using the money that's losing value over time.

So there are more useful ways to use gold and for housing and by doing that and using Bitcoin is going to help society. The other thing is that by using Bitcoin, it's very, very easy to forecast.

Everything's open. It's accessible. You can see the supply. You can verify the supply and you know, and it's completely predictable. The amount of inflation on new coins that are going to come into circulation.

I hope that will make sense if any of it didn't reach out to me. Apologies again for the reading, but I hope I will get better. Hope it was useful and we'll do it again soon. Thanks very much for listening.