Quote from: tee-rex on August 30, 2018, 04:14:34 PM

I've recently read a couple of posts here, and it became clear that people don't quite understand what ultimately determines the price of an asset or resource. Many seem to intuitively think that being scarce is enough for being valuable and pricey, or even equal to being valuable and pricey. This may or may not be true depending on another factor which is always at play here.

And this second factor is called utility. These two fundamental factors determine the price of an asset, but none of them taken separately can say anything about the likely price of an asset. Neither scarcity nor utility can determine the price on their own. It is their balance that leads to a price discovery through market means. For example, an asset can be as scarce as hen's teeth, but it still might be worthless. How come? Because being scarce is nowhere near enough to be valuable. To have a price, an asset should also have or provide utility.

In this case, utility means usefulness for achieving certain ends, whatever those can be. If something is scarce but lacks utility, it won't have any value because it is not useful for anything. But utility without scarcity is also pretty much useless for receiving a price tag. For example, the air we breath has absolute utility, without it we would die within minutes. But it has no price tag because it lacks scarcity. It is abundant, so having more of it (so-called marginal utility) doesn't add anything to our well-being as well as wealth.

You are right! The value of bitcoin depends on many factors other scarcity of the currency

Nanacoin

Posts

Merits