Bitcoin, Proof of Work, and Fundamental Value

One thing I read on this subreddit, repeated time and again, is that Bitcoin (or any cryptocurrency for that matter) lacks fundamental value, but this is okay because all currency lacks fundamental value. Apparently the only thing that gives any currency its value is the story that is told about it and the institutions that back its use. But all of this is plainly false.

First let's discuss the nature of value. What had value before the invention of currency? Food and water, shelter and arms because they gave us the ability to sustain ourselves against the forces of nature. Today things far removed from survival have value; a car has value because it allows us to travel large distances at a relatively low cost; A TV has value because it allows us to consume content which removes us, if only temporarily, from the daily struggle of our own lives.

Value comes from the weighing of these needs and desires together against our ability to obtain them. I may value a new 4K TV highly, simply because as televisions become more advanced and inexpensive, I give up little to obtain a new one. Likewise, I may value water very little, despite its necessity for survival, because of its sheer abundance. So value is a tool by which we measure the obtainable things in our society.

Measure is most common in the sciences where fundamental laws are expressed and discovered by the careful measure and interrelating of physical quantities. We measure energy in Joules and a Joule (one Joule) is simply the work done applying 1 Newton of force on an object to move it one meter. And power (Watts) is simply the amount of work done over any given stretch of time. Now imagine if at one moment one Joule required 2 Newtons of force, or if instead of moving a mass one meter, you instead had to move it two meters. How could you decide the difficulty of moving any object anywhere at all?

This is one of the main issues at the heart of money. A currency that is easy to create simply fails to hold value as a tool of measurement. If I go to work today and I sell 8 hours of my time I need to know what value is put on that effort. If prices are ever changing, then how am I to determine what the actual cost of something should be, for the effort I expend in obtaining it? Money first and foremost is a unit that measures the effort of obtaining something versus the benefit it provides.

But even though we can abstract from the physical world, and come up with an idea of what money is, we also require its physical manifestation. Just as we can conceive of light we require the sun to provide its physical existence. And so we attempt to create money to satisfy the need of a measuring tool. Gold has served as money because of its relative scarcity. Paper money was invented to make the transportation of physical value easier. Digital money does this even better. History is replete with examples of improvements of money as a technology.

Simply put, Bitcoin serves this purpose better than any technology before it. The fact that it is scarce, secure, divisible, easily transferable, and trustless serve to make it the best measurement tool available. Yet most importantly is that it costs vast amounts of energy and computational work to secure the network and generate more Bitcoin. Energy and computation are two things that are fundamental to modern society and hold immense value. Having to spend these things to generate Bitcoin imbues the network with power in the same way that charging a battery imbues it with the power to operate my computer, or my refrigerator.

Making a currency more energy efficient is like making your currency out of readily available material. Which would you prefer? Gold coins or beans in equal quantity? Which holds more value? A currency that is created from spending large amounts of work or a currency that is 98% more energy efficient. Now of course, people need to use a currency for it to have value, and this does often come with a story that draws you in before you can recognize what properties it is that actually give the currency value in the first place. The dollar is backed by the world's foremost (fading) superpower, gold is beautiful and scarce. But if you need a story to believe at first then I ask you: Who is Satoshi Nakamoto?