Quote from: Adrian-x on April 29, 2014, 05:27:22 PM

Quote from: rpietila on April 29, 2014, 03:34:28 PM

Quote from: toast on April 29, 2014, 03:20:49 PM

The belief that mining somehow "backs" or adds value to bitcoin is like a cult mentality.

It is a fact that mining somehow backs and adds value to Bitcoin. But how to explain it best? Who can help? (I am at a loss despite calling me "monetary economist" even before Bitcoin was invented Embarrassed

)

@ toast, the evolution of logic(scientific method) cult is an open cult many follow the scientific method because it is functional but some are just cult follows and not open to reason, your job is to distinguish between the two.

Ludwig von Mises describes how the commodity with the most general utility becomes "money" then through evolution his regression theorem explains how we get fiat.

It is important to understand that "money" is you labour or the product of your labour, and not all labour or products are equal. (Digging a hole in the ground and filling it up is labour intensive but has no value, like wise making something no one wants lacks value)

Subjective human preferences give commodities there value, this value changes but it represents the majority. (This is called intrinsic value, it should be called functional utilitarian value - gold bugs get hung up here as they can make a cup from gold but not cryptocoins.)

Adam Smith presents arguably the definitive argument of on how we all cooperate in a free market all notable economists agree including Marx.

Smith explains how excess resources in an economy lead to the division of labour which in turn leads to codependent relationship in an economy like mining copper and copper being manufactured into a plow which in turn increase productivity resulting in competition and an increase in productivity.

Smith also shows how the excess resources are invested in the most valuable commodities and how those commodities become money as everyone can use them in trade to be more productive.

Those comprises that improved productivity were metals, bronze and later silver and gold because they out lasted all others.

Over time the value of metals came to represent the cost + profit it took to mine them. They held there value in the free market because capital accumulates where it it provided the most utility.

Mises explains how we get from then to now, understanding this and projecting explains how fiat causes mal-investment and the mis-allocation of resources.

Now PoW ensures the cost of money requires the investment of excess resources, this is consistent with the work of Adam Smith it's value is derived by the majority its production is limited by competition and availability of excess. It isn't a cult. It's value is free market driven and like gold its production gets exponentially more expensive.

Now PoS has more similarity to how capital functions today, it requires an all knowing enlightened administrator, capital allocation is not determined by the free market but by the controller of the capital.

+1

Nice write-up Adrian.