Paddy Zimbron
November 2017.

Is the value of blockchain socially constructed, or there is hard back-up for it?

1 answer

I assume that here you are referring to cryptocurrencies which use blockchain technology.

This is a topic that economists have been debating for centuries: when does something have value? It’s when people think it has value; when people exchange goods for this thing. Right now we consider our dollars and pounds to have value because our government says it has value; it is no longer tied to the gold standard, so we are no longer even weighing it against some physically limited resource. In that sense, bitcoin is more concrete because it is tied down to something specific. It is tied down to work that someone is doing, to do computations. And that is a limited resource. No one can just come up and declare, “okay, today bitcoin is worth THIS much” because it is organically decided. And this is also why you see a lot more fluctuations - there is no central authority deciding what the value should be.

So is there hard backup? Bitcoin is tied to computation. There are projects, however, that are trying to link the value of cryptocurrency to the value of gold. There is also one called Bitcoin Gold, which ties the value of bitcoin to gold, and there is also one called Bitcoin Uranium, which does the same with uranium. These proposals link the value of cryptocurrency with some physical object. That’s one way of doing things, but that’s definitely a niche. Most cryptocurrencies do not try to link it with some physical thing, they try to contain its value within the system itself.