Digital Currency: The Intrinsic Value Argument

US Treasury Silver Certificate

“Money hasn’t been real since we went off the gold standard. Its become virtual, software, the operating system of our world.”

Mr. Robot, Season 1, June 24, 2015

When friends say that Bitcoin “has no value because there is nothing behind it”, you’re being sucked into the “intrinsic value argument.” Intrinsic value means that the token you’re discussing has an obvious value which requires no faith or belief in ANYTHING. Coins were once a good example of a form of money that had intrinsic value because the metal in the coin was gold or silver and could easily be melted down to make something else of value. Today, most citizens have been seduced by the illusion that their countries currency, in our case the dollar, has intrinsic value. This is a lie; a dollar is worth nothing more than what we collectively believe. This has been true since 1971 when the US completed going off the gold standard. As a boy, I remember coming across US dollar bills with a “Silver Certificate” banner across the top (like the one pictured above). At one time you could take those specific currency notes to a Federal Reserve Bank and exchange them for an equal amount of silver coins, this was the final vestige of the dollar having some sort of intrinsic value. Today those notes are rarely if ever encountered in circulation as most of them have been destroyed or collected. If you were to hand a silver certificate to a twenty-something bank teller today and demand real silver they’d either look at you with a dumb stare or check to see if you’d arrived in a smoking DeLorean.

Now some might argue that you can take a dollar bill and exchange it for quarters or half dollar coins that have an intrinsic value. Years ago, this was true, Quarters minted before 1964 were silver, but from 1964 on the US moved to alloys by mixing in less valuable metals like Nickel, Copper, and Zinc. Today a US Quarter is 92% Copper and 8% Nickel so if you were to melt four of these down, separate out each metal and sell them off at current market prices you’d have lost 86% of the perceived value of your original dollar bill. Note that it doesn’t account for your time spent doing all this work, and the energy required to melt down the coins. This means that even our coins have marginal intrinsic value. Now if you’re reading this in another country guess what, all this applies as well, no country today is on any form of precious metal standard. The ONLY value ANY currency has is our collective belief, our confidence, that it does, in fact, have value.

Furthermore, we regularly buy and sell stocks, bonds, and other securities that also have no intrinsic value, does that make them any more or less “real” than Bitcoin? Today the market capitalization of Bitcoin is $150 billion dollars, making it as valuable as Citigroup. You need only check your wallet to see just how real Citigroup is as you’re likely carrying around a Citigroup card. Is Bitcoin any less real than that seemingly worthless piece of plastic? Companies are legal constructs, that can be created or destroyed overnight. We’d need only look at Enron and Thomas Cook for example. They were once legal constructs just like Citigroup. Our monetary system is based on confidence, nothing more.

“In the fallout of the Great Depression, FDR closed all the banks for a bank holiday and then he reopened them in stages when they were reported to be sound. Later, historians discovered what we in this room now know; that those reports, they were mostly lies. Nevertheless, it worked, it worked because the public believed the government had everything under control. You see? That is the business model for this great nation of ours. Every business day when our market bells ring, we con people to believing in something: The American Dream, family values…; could be freedom fries for all I care. It doesn’t matter! As long as the con works and people buy, sell whatever it is that we want them to.”

CEO Phillip Price, Mr. Robot,, July 13, 2016

While this quote is somewhat dark it crisply demonstrates a historic example of how trust, and by extension confidence, is the foundation of our monetary system. So next time someone says Bitcoin is worthless ask them if they own any stock.

P.S. Mr. Robot returns Sunday night October 6th for its fourth and final season.

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