Thomas Edison, Bitcoin, and Intrinsic Value
A Response To Smiling Dave’s Article Named, “Bitcoin and Intrinsic Value”
Smiling Dave is a blogger who has in an interest in Austrian Economics. He has written several articles about the demise of bitcoin. In one of this articles, “Bitcoin and Intrinsic Value,” he describes a hypothetical situation where Robinson Crusoe is isolated on an island where he finds gold:
The first value comes from answering the question, “What could Robinson Crusoe do with [gold]?” Crusoe had nobody on his island to buy from or sell to, so the gold coin had no use as money. But it did have some use. He could use it for jewelry, if he was vain. He could use it as a component of his computer chips, or whatever.
OK, now Crusoe comes off the island back to civilization. He finds that everything has a price pretty much as he valued things on the island, except for one thing. His gold coin, he finds, is worth much more than he thought. “Why are people setting such a high value on something of so limited a use?” he wonders. Then he finds out that gold is the coin of the realm. Aha, that explains it. It has a use in civilization it never had on the island. You can easily buy stuff with it, anything from everyone. That is a useful feature, that increases the usefulness, and thus the price, of gold.
- Smiling Dave
In these two paragraphs Smiling Dave is explaining why gold has intrinsic value, and claims that bitcoin has no intrinsic value because it has no use on the island. I am going to describe a situation where bitcoin does indeed have intrinsic value.
Imagine a scenario where instead of Robinson Crusoe another man named Thomas Edison, a prolific inventor, somehow became stranded on an island. Thomas Edison loved to invent new contraptions, but in order to secure his distribution rights he had to file an application with the patent office. Because he was isolated on the island he felt it was futile to invent unless he was able to prove with 100% certainty that he was the first person to conceptualize his ideas. The patent office would only grant rights to Thomas Edison if he submitted his patent application before anyone else did, but maybe they would grant him some leniency since his ship was capsized a day before. He knew that it could be a matter of days that other competitors could reach the patent office. Is there any way for Mr. Edison to prove that he was the first person to think of his new idea?
As he was thinking a bottle was washed ashore with a note and an algorithm explaining how it was possible to timestamp information inside something called a “blockchain“. The note was signed by “Satoshi Nakamoto,” and it contained a special key which had tokens that allowed him to timestamp his latest invention. Mr. Edison followed the instuctions and implemented the algorithm, which he did with pen, paper, and a whole lotta mathematics. Without a doubt he had proof that he was the first to come up with his idea, even though no one was on the island.
OK, the following day a ship picks up Thomas Edison and returns to civilization. He finds that everything has a price pretty much as he valued things on island, except for one thing. His tokens were also known as bitcoins, and he finds that it is worth much more than he thought. “Why are people setting such a high value on something of so limited use?” he wonders. Then he finds out that the bitcoin is the coin of the realm. Aha, that explains it. It has a use in civilization it never had on the island. You can buy stuff with it. That is a useful feature, that increases the usefulness, and thus the price of bitcoin.
Conclusion: Did Thomas Edison just solve a block using pen and paper? My point of the story is that it is feasible to perform bitcoin transactions on the island since it is based on mathematics. One could even change the story slightly and include a mining rig on the island, which would make the story even more believable, or there could be Internet access on the island, which allowed him to broadcast his transactions to the bitcoin network via satellite or whatever. Or, maybe Satoshi included a solved block inside the bottle. Nevertheless, it is still possible, however improbable, that with just pen, paper, and mathematics for someone to utilize the bitcoin protocol. The time-stamping ability of bitcoin is an intrinsic property and that is why bitcoin has intrinsic value using Smiling Dave’s logical foundations to formulate his arguments.
The Sequel: Thomas Edison returns to the island to put a cryptographically signed message in a bottle so anyone in the universe will know he was the one who wrote the original message. Cryptography has intrinsic value…