Goods that have desirable characteristics are more valuable than those that don't. We may disagree on the exact price of a good, but if we agree that one thing has more desirable qualities than another thing, then we know that the proper order is to value the more desirable one over the less desirable one.
To say that a good has more value because it lacks a certain desirable quality is nonsense. However, that exact argument is surprisingly common when it comes to cryptocurrencies. People will argue that Bitcoin is more valuable than gold based money because Bitcoin is not convertible into gold.
This makes no sense at all. However, it is relatively easy to see how to arrive at this erroneous conclusion.
Let's say that Bitcoin was constructed exactly as it is today, but that it came with a promise that every Bitcoin could be exchanged for 1 gram of gold if delivered at a certain office. Such a construct would simply guarantee that a Bitcoin would never fall below the price of 1 gram of gold. But the perception among most people would be that the price should not exceed 1 gram of gold by much either.
The erroneous perception would most likely have held Bitcoin back from its astronomical rise. If a Bitcoin was tied to 1 gram of gold, why pay thousands of dollars for it?
The error in thinking is that the mention of 1 gram of gold is perceived as the sum total of the value, while money has the additional value of convenience. A gold backed Bitcoin would be worth 1 gram of gold + convenience, which is more than 0 gram of gold + convenience.
Should the Bitcoin bubble burst due to a perceived lack of convenience, a gold backed Bitcoin would find a price floor at 1 gram of gold. However, Bitcoin has no backing of any kind, so its price floor is zero.
This simple fact is completely overlooked at the moment, but is likely to come as a brutal lesson in valuation for all the hopefuls out there, thinking their Bitcoins will go ever higher in value precisely because it has no backing.
Bitcoin will one day crash down to its price floor due to competition or for other reasons, and people will discover the hard way that Bitcoin's price floor is zero. Gold on the other hand will never go to zero because it has real value as jewelry and in engineering. There will always be someone out there willing to take your gold in exchange for something else.
Brass token backed by nothing
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