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First, let’s make it perfectly clear that I am not offering any sort of investing advice. Bitcoin, and its underlying block-chain are however a very intriguing proposition. If you haven’t availed yourself of the plethora of articles and Youtube videos describing exactly what Bitcoin is and how it works, do yourself a favor and educate yourself to this potentially life-changing phenomenon.
It cannot be emphasized enough when looking at Bitcoin one must divorce themselves from what we’ve been taught qualifies as a currency. The coin itself is merely a measure of the transactional capabilities of the underlying structure. It does have value, and that’s what I’ve been contemplating for the last year. How do you know how much each Bitcoin is worth?
For so long I have tried to view Bitcoin like I would a stock, and it’s very hard for me to invest in any financial instrument that is trading over $100, let alone $200. But this is not a stock; it’s a global network meant to facilitate the movement of money across the globe with much less friction that the current system. I’ve never been one to prescribe to religious teachings for anything more than historical context. However, if the story of Jesus over-turning the money changers’ tables is true (and even if it’s not) than the vig charged by banks has been a societal issue for thousands of years.
Since anyone who buys Bitcoin is purchasing a piece of the network that enables global financial transactions, I personally believe that when must break that network down to its least common denominator. In this case it’s called a Satoshi. When you look at a Bitcoin, its value is stated as 1.00000000. The zero the farthest to the right is a Satoshi, and if anyone wants to send a transaction across the network, you must own at least that denomination on which to piggy-back the transaction. That is why you cannot separate the Bitcoin from the underlying block-chain. So, that Satoshi has to have some value, right? So how do we place a value on it?
I’ll start with how much it would cost to wire a thousand dollars from Orlando, FL to Hong Kong via Western Union. Per their website, the least one would be charged for this transfer is $12. If we place that as a value for the one Satoshi, that would mean each Bitcoin would be worth $1.2 billion dollars.
Obviously, the purpose of Bitcoin is to remove the friction from the system, so that valuation would be well overstated. However, there has to be some value to this new network … and coin. Even if that Satoshi was worth a penny, the value of each Bitcoin would be one million dollars.
Am I saying that these values should be considered fair values? Of course not. However, it does illustrate that there is a great deal of value in the network that has already been built, and seeks out innovation and acceptance. One thing I have learned in my life is that when someone looks me in the eye and tells me, “This is the best alternative for you.” The passion with which they try to transfer “need” to me is nothing more than a reflection of their own wanton desires. When financial experts tell you, via the main stream media, that Bitcoin is worthless, take the opportunity to think for yourself. No one else will.