Quote from: Paralich on December 10, 2013, 04:45:09 AM

I think there is some kind of an intrinsic value to cryptocurrencies, it's derived from combination of energy and computational time spent on mining. Just as in your example with gold, energy could have been spent on creating something material and computational power could have been used to do calculations, but both were spent on mining coins, so now the value of those is a combination of 2 inputs, even though you can't get them back by disassembling.

However, this has really nothing to do with coin's market value,

Good point. I think intrinsic value is a loaded phrase that typically means people can use "item X" for some basic or alternate function. Virtual currencies really don't have other uses. Other than to move bits around between two authenticated parties. Though I think this is fundamentally useful. I'd even go so far as to say it is the intrinsic value of bitcoin.

With respect to your main observation, I agree that the energy and computational power used to check transactions could be used for other purposes. This creates a floor on the value of decentralized virtual currencies. However I haven't crunched the numbers to see what that theoretical minimum equates to on average (for me I pay roughly 0.12 $/kWh at 43W to run my BFL Little Single). So in a way bitcoin acts as a motivator to encourage people to figure out ways to economize energy consumption and get more computations per second.

I see this as being potentially beneficial down the road because it ties bitcoins value in part to energy costs. Though I realize this just means more research into ASIC design rather than something more fundamental like additional research dollars pumped into harnessing cheap energy.

However, as interesting as this might be, that is a discussion for another thread.

I want to focus on the benefits and issues that exist because of the absence of intrinsic value (in the sense of a currency being useful for another function -- like gold).

Basically here is the scenario that keeps playing through my head.

Inflation relatively increases the wealth of people who work for a living (middle class and poor) because wages rise vs debts compared to those with excess capital who lend it out (wealthy).

Back in the 19th century average populists and average people understood this one correctly.

Since deflationary currencies like gold had intrinsic value and were scarce. Debts increased over time.

This was a problem.

I see bitcoin as a solution because it doesn't have alternate use. This motivates people to move their bits as quickly as they expect it to devalue just like how moving fiat (inflationary currency) is a good thing if you want to get the maximum value for it (e.g. $1 USD today is worth more than 1 future USD unless it's invested at a rate that exceeds inflation).