Critics of Bitcoin often dismiss it as a Ponzi scheme or a speculative bubble, claiming it has no inherent value.
Michelle Bullock who lords over Australia’s Central Bank recently said:
“I don’t understand it, but, you know, I don’t really see a role for it in, certainly in the Australian economy or payments system.”
It is very clear that she doesn’t understand it. Even though it is legal tender in El Salvador, she claims:
“Don’t call it an alternative currency,” she said. “It’s not a currency, it’s not money, it’s being used as some sort of asset class.”
Warren Buffet called it, “Rat Poison Squared”.
The head of Australia’s corporate regulator, Joe Longo said, Bitcoin was a good example of “the bigger fool theory” where the objective was merely to locate a buyer willing to pay an even higher price for a valueless asset.
These arguments typically stem from the fact that Bitcoin is a digital asset, untethered to any physical object or government guarantee. Many of those in traditional finance with decades of experience simply don’t have the tools to understand bitcoin. Because it isn’t a commodity, a stock of a company or something else they learned about 40 years ago, they default to the thinking that it must be some sort of scam.
However, this criticism misunderstands what Bitcoin truly is and overlooks the unique value it offers. Bitcoin represents ownership of a portion of a decentralized, immutable network with a strictly limited supply—something the world increasingly needs as traditional systems face inflation, censorship, and centralization concerns.
To deny Bitcoin's value based on its digital nature is to deny that digital infrastructure and networks can have real worth. Much like how the Facebook platform holds immense value despite individual accounts being free and infinitely reproducible, Bitcoin’s value arises from the scarcity and utility of the network it represents. This article will explore why claims of Bitcoin's lack of inherent value are flawed and will demonstrate that its scarcity, utility, and role as a decentralized infrastructure form the foundation of its worth.
What Is Inherent Value?
Inherent value refers to the fundamental worth of something based on its essential properties, independent of external perception or market dynamics. Traditionally, this concept has been tied to physical assets, such as gold, which holds value due to its scarcity, durability, and utility in industries like jewellery and electronics.
Despite gold’s inherent value in industry, it is mainly an inert store of value. Given that the total amount of gold ever mined is estimated at around 208,000 metric tons, and annual industrial consumption is roughly 330-350 metric tons, existing reserves could theoretically last for over 500 years at current usage rates. However, this simplistic estimate doesn't account for factors like increased industrial demand, recycling efficiency, or technological advancements that could alter gold usage and availability. Gold is also highly recyclable, meaning much of it could be reused rather than depleted outright.
Similarly, commodities like oil derive inherent value from their functional utility as energy sources. Even fiat currencies, despite lacking intrinsic material worth, are said to have inherent value because governments back their use as legal tender, creating trust in their ability to facilitate trade.
The digital age challenges a traditional understanding of value. Many systems and networks, while intangible, possess immense value due to their utility, scarcity, or infrastructure. For example, social media platforms like Facebook generate significant value not from individual accounts—which are freely created and infinite—but from the infrastructure and network effects that connect billions of people globally. These networks provide a service that fulfills a vital need: communication and community in the digital space.
Applying this concept to Bitcoin, inherent value can be understood as stemming from its unique properties. Bitcoin’s fixed supply of 21 million units ensures digital scarcity, a feature that no fiat currency or traditional asset class replicates. Moreover, the utility of Bitcoin as a decentralized, trustless system for storing and transferring value on a global scale positions it as a critical piece of digital infrastructure. To dismiss Bitcoin’s value simply because it is digital ignores the growing reality that value is increasingly tied to digital systems that provide necessary and innovative solutions in today’s world.
Bitcoin’s Digital Scarcity
One of the most compelling aspects of Bitcoin is its digital scarcity, a feature that underpins its value and sets it apart from both traditional currencies and other digital assets. Bitcoin’s supply is capped at 21 million, a fixed limit embedded in its code. Unlike fiat currencies, which governments can print indefinitely, Bitcoin's issuance follows a predictable and transparent schedule, with approximately 19.7 million bitcoins already in circulation. This scarcity creates a dynamic akin to precious metals like gold, where the limited supply drives long-term value.
Digital scarcity is a revolutionary concept. Unlike physical objects, digital goods have traditionally been infinitely reproducible at virtually no cost. A social media account, for example, can be duplicated an endless number of times, which is why an individual Facebook account has no inherent value. However, the Facebook network—the infrastructure and ecosystem connecting billions of users—holds tremendous value because of the utility it provides. Bitcoin, on the other hand, uniquely combines scarcity with network utility. Owning Bitcoin means owning a fraction of a finite resource within a decentralized, trustless, and immutable system. This rarity and exclusivity give Bitcoin an intrinsic quality that distinguishes it from other digital entities.
The scarcity of Bitcoin also acts as a hedge against inflation, a problem plaguing fiat currencies worldwide. When central banks increase money supply, the value of each unit diminishes over time. Bitcoin, with its fixed supply and deflationary design, provides an alternative that ensures purchasing power is preserved rather than eroded. This quality makes Bitcoin particularly valuable in economies experiencing hyperinflation or instability, where individuals increasingly seek refuge in assets that cannot be devalued by government policies.
Bitcoin as Digital Infrastructure
Beyond its scarcity, Bitcoin derives significant value from its role as a piece of decentralized digital infrastructure. When you own Bitcoin, you are not merely holding a speculative asset—you own a fraction of a global network designed to facilitate secure, trustless transactions and store value without reliance on central authorities. This infrastructure operates on a blockchain, an immutable ledger that records all transactions transparently and securely. Its decentralized nature ensures that no single entity can control or manipulate the system, making it a revolutionary alternative to traditional financial networks.
The Bitcoin network provides services that are increasingly vital in a digital and interconnected world. At its core, Bitcoin functions as a decentralized store of value, immune to inflationary policies and the risks of centralized monetary systems. Unlike traditional banks, Bitcoin allows individuals to hold and transfer wealth without intermediaries, reducing costs, delays, and exposure to corruption or censorship. This is especially significant in regions where financial systems are unstable, where Bitcoin acts as a lifeline for individuals seeking financial autonomy and security.
Bitcoin’s infrastructure also enables trustless transactions. This means that parties can exchange value without needing to rely on third parties like banks or payment processors. The network achieves this through cryptographic verification and consensus mechanisms, which ensure that transactions are secure and valid. This capability has enormous implications for global commerce, particularly in cross-border trade, where Bitcoin eliminates the need for costly intermediaries and reduces settlement times.
To understand Bitcoin’s value as infrastructure, consider parallels with other networks. The internet itself is an invaluable global infrastructure, providing the foundation for countless services and industries, even though no single person "owns" it. Similarly, platforms like Amazon Web Services (AWS) or cloud-based storage systems derive their value from the utility and efficiency they provide, rather than any single, tangible product. Bitcoin operates on the same principle: its value lies in the system and the solutions it offers, rather than in any physical form.
The Fallacy of Comparing Bitcoin to Ponzi Schemes
One of the most persistent criticisms of Bitcoin is the claim that it operates like a Ponzi scheme. This comparison, however, fundamentally misunderstands both the structure of Bitcoin and the mechanics of an actual Ponzi scheme. A Ponzi scheme is a fraudulent financial operation where returns to earlier investors are paid out using the contributions of newer participants, rather than through legitimate profit-generating activities. Such schemes collapse when new investment dries up, leaving later participants with significant losses. Bitcoin, in contrast, has none of the hallmarks of a Ponzi scheme.
Bitcoin’s design is transparent and open-source, with all transactions publicly recorded on the blockchain. There is no central operator or entity promising guaranteed returns or manipulating funds behind the scenes. Instead, Bitcoin’s value arises from market forces—supply, demand, and its unique utility as a decentralized network. Unlike Ponzi schemes, which rely on deception and unsustainable growth, Bitcoin is built on trustless technology and operates independently of any one individual or organization.
Another critical distinction is that Bitcoin does not require new participants for its continued existence or value. Its fixed supply ensures that scarcity is maintained regardless of how many people adopt it. Early adopters may benefit as Bitcoin’s value increases with growing demand, but this is a feature of any scarce asset, not evidence of fraud. For example, those who bought gold before it became widely valued also saw significant gains, but that does not make gold a Ponzi scheme.
Furthermore, Bitcoin’s decentralized nature ensures that it cannot collapse in the manner of a Ponzi scheme. Ponzi schemes inevitably fail when they can no longer sustain payouts to earlier investors, as they are inherently dependent on a central figure orchestrating the system. Bitcoin, on the other hand, has no central authority and no reliance on ongoing recruitment. It is a self-sustaining network supported by miners, developers, and users around the world.
The claim that Bitcoin is a Ponzi scheme often stems from misunderstanding its price volatility and speculative nature. While price fluctuations can be significant, these are a reflection of Bitcoin’s emerging status as an asset class and the free market’s determination of its value. Speculation is not synonymous with fraud, and volatility is a common characteristic of early-stage technologies.
In truth, Bitcoin’s transparency, decentralization, and fixed supply make it the antithesis of a Ponzi scheme. By conflating the two, critics overlook the fundamental innovations and utility that Bitcoin provides, mischaracterizing one of the most transformative technologies of the 21st century.
How Bitcoin’s Price Increases Enhance Network Value
A key feature of Bitcoin’s design is that its value grows symbiotically with its price. As the price of Bitcoin rises, the network becomes stronger, more secure, and increasingly trusted. This dynamic creates a feedback loop that reinforces Bitcoin’s role as a foundational digital asset and further solidifies its position as a store of value.
When Bitcoin’s price increases, the total market capitalization of the network expands, leading to higher liquidity in the market. Greater liquidity has profound effects on the network's functionality and adoption. For one, it allows larger entities, such as institutions, governments, and pension funds, to hold significant positions in Bitcoin without destabilizing the market when buying or selling. This reduces volatility over time, making Bitcoin a more attractive asset for these players. As the market matures, Bitcoin’s appeal as an alternative to traditional financial instruments like bonds increases, especially given its higher historical annual returns and the diminishing yields offered by bonds in low-interest-rate environments.
The price increase also directly impacts the security of the Bitcoin network through the hashrate, a measure of the computational power dedicated to mining and securing transactions. Higher Bitcoin prices incentivize more miners to join the network, increasing the hashrate and making it significantly more resistant to attacks. The energy-intensive nature of mining, often criticized, is what ensures the network’s immutability and robustness against double-spending or centralized control. In this way, rising prices translate into greater decentralization and security, reinforcing trust in Bitcoin as a reliable and resilient system.
Moreover, the higher liquidity and growing security attract more participants, creating a positive cycle of adoption. Institutions holding Bitcoin can do so with confidence, knowing that the network’s infrastructure and market depth are capable of supporting large-scale transactions. This institutional involvement further stabilizes the network and encourages others to adopt Bitcoin as a core asset.
Another factor that enhances Bitcoin’s value as its price increases is the growing trust in the network over time. Unlike newly created digital assets, Bitcoin benefits from its longevity. Since its creation in 2009, Bitcoin has weathered countless challenges, including market crashes, regulatory scrutiny, and technological competition. Each year that Bitcoin survives without compromise strengthens its reputation as a secure and reliable digital infrastructure. This "Lindy effect," where older systems are perceived as more likely to endure, adds to the confidence investors and users have in Bitcoin’s long-term viability.
Ultimately, Bitcoin’s price increases do far more than enrich early adopters—they strengthen the network’s security, liquidity, and credibility. This self-reinforcing dynamic makes Bitcoin not just an asset but an ever-evolving and increasingly indispensable piece of global financial infrastructure. As more entities recognize these qualities, Bitcoin will continue to shift from being viewed as a speculative investment to a foundational asset in a decentralized digital economy
The Real-World Utility of Bitcoin
While Bitcoin's critics often focus on abstract debates about its inherent value, its real-world utility provides clear evidence of its importance. Bitcoin is not just a speculative asset; it is a practical tool that addresses fundamental issues in the global financial system. Its utility as a store of value, a medium of exchange, and a tool for financial sovereignty is demonstrated across diverse scenarios, from individuals in unstable economies to multinational institutions.
One of Bitcoin’s most significant uses is as a store of value. In countries experiencing hyperinflation, such as Venezuela or Zimbabwe, fiat currencies lose purchasing power rapidly, eroding savings and destabilizing economies. Bitcoin offers an alternative—a currency immune to inflationary policies and capable of preserving value over time. Unlike gold, which is challenging to store and transport securely, Bitcoin is easily portable and can be accessed from anywhere in the world with an internet connection.
Bitcoin also excels as a medium of exchange, particularly for cross-border transactions. Traditional financial systems often involve high fees, long delays, and reliance on intermediaries. Bitcoin eliminates these barriers by enabling peer-to-peer transactions without the need for banks or payment processors. This is especially valuable for remittances, where migrant workers can send money to their families in developing countries without incurring exorbitant fees from traditional services like Western Union. The Bitcoin network operates 24/7, providing a faster and cheaper alternative to legacy financial systems.
Moreover, Bitcoin empowers individuals with financial sovereignty. In regions where governments impose strict capital controls or where banking systems are inaccessible or unreliable, Bitcoin provides an uncensorable means of storing and transferring wealth. This independence is crucial for individuals living under oppressive regimes or in conflict zones, where financial freedom can be a matter of survival. Bitcoin's decentralized nature ensures that no authority can freeze or seize funds, offering unparalleled security and autonomy.
Bitcoin’s utility is not limited to individuals. Institutions and governments are increasingly adopting it for various purposes. Companies like Tesla and MicroStrategy have added Bitcoin to their balance sheets as a hedge against inflation and economic uncertainty. El Salvador has gone a step further by adopting Bitcoin as legal tender, aiming to attract investment and reduce reliance on traditional remittance channels. These developments underscore Bitcoin’s growing role as a mainstream financial asset.
In addition to these use cases, Bitcoin’s open-source nature has inspired a broader ecosystem of innovations, from decentralized finance (DeFi) platforms to second-layer solutions like the Lightning Network, which enhance scalability and reduce transaction costs. These advancements further solidify Bitcoin’s position as a versatile and transformative technology.
Bitcoin’s real-world utility extends beyond ideological arguments, offering practical solutions to economic challenges and financial inefficiencies. Whether as a hedge against inflation, a tool for global payments, or a means of financial independence, Bitcoin proves its value through its ability to address real needs in an increasingly interconnected world. Its growing adoption by individuals, businesses, and governments alike is a testament to its relevance and enduring utility.
Conclusion
Bitcoin’s critics often dismiss it as a valueless digital token, failing to grasp its true nature as a revolutionary monetary network that provides essential digital infrastructure for the modern economy. Owning Bitcoin is not merely holding a speculative asset but owning a share of a vastly superior monetary system that transcends traditional limitations.
Bitcoin’s value lies in its ability to combine digital scarcity, utility, and decentralized infrastructure to address the inefficiencies and vulnerabilities of existing financial systems. Its fixed supply ensures resilience as a store of value, especially in an age of rampant monetary expansion and inflation. As a decentralized network, Bitcoin offers a censorship-resistant, trustless framework for transferring value, empowering individuals and institutions with financial sovereignty and security beyond the control of centralized entities.
Viewing Bitcoin solely as a digital asset misses its broader role as a foundational layer of digital infrastructure. Like the internet, which revolutionized communication, or cloud systems, which transformed data management, Bitcoin redefines how value is stored and transferred in a global, interconnected world. Its utility as a medium of exchange, a hedge against economic uncertainty, and a vehicle for financial inclusion underscores its indispensable role in the emerging digital economy.
For the so-called "experts" who still dismiss Bitcoin, admitting they were wrong would be nothing short of a humiliating reckoning. To have written off Bitcoin at $100 and now face its meteoric rise is to over $100,000 US is to confront the harsh reality of having ignored the greatest investment opportunity of our time. The truth is, most Bitcoin deniers refuse to simply admit, "I don't understand it." Dismissing Bitcoin as "rat poison" because it doesn’t serve industrial purposes like gold or pay dividends like a stock reveals a staggering failure to grasp the the emergence of digital value.
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