Bitcoin and Value

BitCoin -

I was contemplating value and other nebulous ideas.  How does one assign value to anything?

I am skeptical about digital currencies, as I don't think any large government is going to allow a digital currency to become too competitive to their currency.  If nothing else, the USA can declare Bitcoin a national security risk, and make it illegal for anyone in the USA to use or purchase Bitcoins.  Then the government does not have to shut Bitcoin down; as they can't shut them down without introducing very sophisticated viruses. 

This rise of Bitcoin is vexing to economists and gold bugs world wide. So what is Bitcoin?

Definition:

Bitcoin is a digital currency that allows two individuals or organizations to trade without an intermediary in the global market.  Satoshi Nakamoto used peer-to-peer technology to create the concept of digital currency that was not controlled by anything except what the market accepted as "value".

Being a skeptic, I did not participate in the 7,500% rise in bitcoin in a few weeks. 

Trained economists (myself included) find the idea of Bitcoin and its valuation contrary to all Keynesian economic theories.  For Dr. Bernanke, Janet Yellen and others like them government is the only font of wealth and organizers of people's lives.

Of course, the unwashed non-economic professional will choose freedom which is an anathema to Keynesian's view of how people's lives should be organized and controlled.  Gold Bugs are different in that the would believe in intrinsic value, but as can be easily derived, Gold's value is not intrinsic.  It is whatever the market says it is - even if one thinks there is manipulation in the gold market.

So I thought about what value is as it applies to an asset price (where currency is an asset). 

Value is changing constantly as man acts to attach value to ultimate ends.  If one attends an auction, the value of asset (horse for example) is the highest bid.  There is no guarantee that the value the winner can sell the horse for is anywhere near the value the owner paid.  The value is to the buyer of the horse for whatever the ultimate ends the purchase was to obtain. 

Sorry, gold bugs, but value is not intrinsic; it is not in things. 

Value is within us.  We value things within the conditions we face in our unique environment.  (If you slightly feel uneasy about this, then think about a person marooned in the desert without water with $10,000 US Treasury note in their backpack.  How much is that person willing to pay for water at that point, and the longer they are without water, the more they will pay.)

Bitcoin will be bought for many reasons, but as for transactions between parties, the concept should be it is cheaper than bid/ask spreads between currencies.  In other words, trading between partners with different currencies is expensive and complex.  Bitcoin's transaction is a simple as buying an apple at a grocery store in the USA with US $. 

This is freedom - something which governments over and over do not want people to have.  In my opinion, the USA citizen gave up their freedoms as defined by the bill of rights, and those freedoms are never ever coming back in the current form of government. That includes the ability to transact business in the form of other more stable currency.

Von Mises said " Government is the only institution than can take a valuable commodity like paper and make it worthless by applying ink."

Will the experiment in Free Market Money survive?  I wonder on multiple levels as you should.  It is hard to believe that the USA's state of totalitarian government would allow this to continue.  China's government would be as harsh, and it is doubtful the Eurozone will allow free competition if it threatens currency and sovereign debt.  

The Eurozone's reaction to Cyprus ' issues last year indicate what the elitists will do to save the current establishment.  What they did was not pretty, and the USA and UK are contemplating monetary policy that would make Cyprus seem like a haven for your money if the USA or UK decide to follow their current published plans.